<PAGE>
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   -----------

                                   FORM 10-K
(MARK ONE)
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
      ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                        COMMISSION FILE NUMBER 000-32855
                                   -----------

                              TORCH OFFSHORE, INC.
             (Exact Name of Registrant as Specified in its Charter)

                                    DELAWARE
         (State or Other Jurisdiction of Incorporation or Organization)

                                   74-2982117
                      (I.R.S. Employer Identification No.)

                          401 WHITNEY AVENUE, SUITE 400
                                GRETNA, LOUISIANA
                    (Address of principal executive offices)

                                   70056-2596
                                   (Zip Code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (504) 367-7030

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                     COMMON STOCK, $0.01 PAR VALUE PER SHARE

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

      Indicate by check mark whether the registrant is an accelerated filer as
defined in Rule 12b-2 of the Securities Exchange Act of 1934. Yes [ ] No [X]

      The aggregate market value of the voting stock held by non-affiliates of
the registrant as of June 30, 2003 was approximately $34.8 million. The number
of shares of the registrant's common stock, $0.01 par value per share,
outstanding as of April 12, 2004 was 12,638,990.

                       DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the registrant's Proxy Statement for the registrant's 2004
Annual Meeting of Stockholders to be filed pursuant to Regulation 14A are
incorporated by reference into Part III of this Form 10-K.
<PAGE>
                              TORCH OFFSHORE, INC.
                           ANNUAL REPORT ON FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 2003

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                         <C>
                                     PART I

Item 1.     Business......................................................    3
Item 2.     Properties....................................................    17
Item 3.     Legal Proceedings.............................................    17
Item 4.     Submission of Matters to a Vote of Security Holders...........    18

                                     PART II

Item 5.     Market for Registrant's Common Equity and Related Stockholder
            Matters.......................................................    18
Item 6.     Selected Financial Data.......................................    19
Item 7.     Management's Discussion and Analysis of Financial Condition
            and Results of Operations.....................................    20
Item 7a.    Quantitative and Qualitative Disclosure About Market Risk.....    43
Item 8.     Financial Statements and Supplementary Data...................    44
Item 9.     Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure......................................    68
Item 9A.    Controls and Procedures.......................................    68

                                    PART III

Item 10.    Directors and Executive Officers of the Registrant............    68
Item 11.    Executive Compensation........................................    68
Item 12.    Security Ownership of Certain Beneficial Owners and Management
            and Related Stockholder Matters...............................    68
Item 13.    Certain Relationships and Related Transactions................    69
Item 14.    Principal Accountant Fees and Services........................    69

                                     PART IV

Item 15.    Exhibits, Financial Statement Schedules and Reports on
            Form 8-K......................................................    69
            Signatures....................................................    74
            Glossary of Certain Industry Terms............................   G-1
</TABLE>

                                      -2-
<PAGE>
                                     PART I

FORWARD-LOOKING STATEMENTS

This Form 10-K includes certain statements that are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. In some cases,
you can identify forward-looking statements by terminology such as "may,"
"will," "should," "could," "expects," "intends," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," "continue," "projects," or the
negative of these terms, or other comparable terminology. All statements other
than statements of historical facts included in this Form 10-K, including,
without limitation, statements under "Item 1. Business," "Item 2. Properties,"
and "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" relating to future events or our future financial
performance, including our business strategy, are forward-looking statements.
These forward-looking statements involve risks and uncertainties that are beyond
our control. Factors that may cause our company's or our industry's actual
results, levels of activity, performance or achievements to be materially
different from those expressed or implied by the forward-looking statements
include or relate to the following: general economic and business conditions and
industry trends; decisions about offshore developments made by oil and natural
gas companies; the highly competitive nature of our business; the availability
and terms of capital; operating risks normally incidental to offshore
exploration, development and production operation; and changes in existing
environmental regulatory matters. Additional risks and other factors include
those listed under "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Risk Factors" and elsewhere in this Form
10-K.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. These statements are based upon certain
assumptions and analyses made by our management in light of its experiences and
its perception of historical trends, current conditions, expected future
developments and other factors it believes are appropriate in the circumstances.
Many of these factors are beyond our ability to control or predict. We caution
investors not to place undue reliance on forward-looking statements. These
forward-looking statements speak only as of the date of this report and we
disclaim any obligation to update the forward-looking statements contained in
this report, whether as a result of receiving new information, the occurrence of
future events or otherwise.

ITEM 1. BUSINESS

GENERAL

As used herein, the terms "Company," "Torch Offshore," "we" and "us" refer to
Torch Offshore, Inc. and its subsidiaries, unless the context requires
otherwise. Certain terms relating to the industry are defined in "Glossary of
Certain Industry Terms," which begins on page G-1 of this Form 10-K.

Torch Offshore, Inc. provides subsea construction services in connection with
the in-field development of offshore oil and natural gas reservoirs. We are a
leading service provider in our market niche of installing and maintaining small
diameter flowlines and related infrastructure associated with the offshore oil
and natural gas reserves on the Continental Shelf of the Gulf of Mexico (the
"Shelf"). Over the past few years, we have expanded our operations, fleet
capabilities and management expertise to enable us to provide services analogous
to the services we provide on the Shelf in water depths up to 10,000 feet. In
addition, we have begun to enter international markets, including Mexico, as we
believe these areas present opportunities for utilization of our fleet. Our
customers are major oil and natural gas companies as well as independent oil and
natural gas operators. The primary services we provide include:

-     installation of pipelines, flowlines, umbilicals and related
      infrastructure;

-     pipeline tie-ins and tie-backs;

                                      -3-
<PAGE>
-     riser, jumper and concrete mattress installations; and

-     integrated construction support.

Our business was started in 1978. Torch Offshore, Inc., a Delaware corporation,
was formed in January 2001 in connection with our initial public offering. Our
principal executive offices are located at 401 Whitney Avenue, Suite 400,
Gretna, Louisiana 70056-2596, and our telephone number at that address is (504)
367-7030. We make available free of charge through our website,
www.torchinc.com, our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and all amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act as
soon as reasonably practicable after such material is electronically filed with
the Securities and Exchange Commission. Information on our website is not a part
of this report.

Requirements of Additional Capital. As a result of relatively weak market
conditions in 2003, the recent arbitration ruling in the Midnight Hunter case
and other events with a direct impact on our earnings, we experienced
significant financial losses in 2003. We have a significant working capital
deficit position primarily resulting from the current classification of the
Midnight Express construction finance facility that matures on October 31, 2004.
In addition, for the three most recent fiscal quarters, we were not in
compliance with certain financial ratio covenants under our debt agreements and
had to obtain waivers and certain revisions to these covenants requirements from
our lenders to prevent an event of default. These conditions place a high degree
of pressure on our liquidity management and could ultimately impact our
operations and future business plans.

We have taken steps to address our requirements for financial liquidity and have
developed a financial plan that we believe will provide us sufficient financial
resources to conduct our business plan during 2004, including the completion of
the conversion of the Midnight Express. We intend to utilize the $19.0 million
increase to our credit line from Regions Bank and Export Development Canada
(EDC) to complete the conversion of the Midnight Express, to raise additional
funds through the public or private placement of equity, to reduce certain fixed
costs, to generate additional funds through the sale of certain vessels, to
utilize our current fleet on the Shelf and beyond into deeper waters to generate
cash flow, and to obtain working commitments for the Midnight Express prior to
or upon completion of its sea trials in the second half of 2004.

For more information regarding our plan, see Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and Note 14 to
the Financial Statements located in Item 8 of this Form 10-K, and for related
risks, see "Risk Factors" included in "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

Operations. Our vessels primarily install marine pipelines and flowlines that
transport oil and natural gas to production platforms and subsea production
systems. We also connect production platforms to trunklines that transport oil
and natural gas to shore. In a typical offshore field, several development wells
are drilled to produce the field. The production from each of the wells is then
transported through relatively small diameter flowlines, with an outside
diameter ranging from 4" to 20", to a production platform where it is aggregated
and sometimes treated before being transported through a larger trunkline to
shore. The wells frequently are completed on the ocean floor with production
systems that need to be connected by umbilicals to the platform so that power
can be supplied to the subsea systems and communications and control can be
maintained. Umbilicals are control lines arranged in a bundle that can include
power cables and injection lines. We specialize in the installation and
connection of these smaller flowlines and umbilicals, including the simultaneous
laying and burying of pipelines, flowlines and umbilicals, and the laying of
both flexible flowlines and coiled tubing. By combining our dive support
vessels, rented remotely operated vehicles (ROV's) and our pipelay vessels, we
believe we are able to install pipelines in a coordinated fashion.

Historically, we have focused on performing projects involving pipelines with
diameters of twelve inches or less in water depths of 200 feet or less on the
Shelf. These types of pipelines are required by regulations to be buried below
the sea floor. We provide additional services in connection with the infield
development of offshore oil and natural

                                      -4-
<PAGE>
gas fields, including inspection and maintenance services, pipeline tie-ins and
tie-backs, riser installation, pipeline surveys and installation engineering and
integrated construction support. These services support offshore infrastructure
construction projects involving pipelines, production platforms and subsea
production systems and are frequently performed in conjunction with our pipelay
or umbilical installations. Our vessels provide a mobile above-water platform
that functions as an operational base for divers in water depths up to 1,000
feet and for ROV's at all practical water depths. In water depths up to 1,000
feet, we typically use our own divers and dive support personnel because we
believe it provides greater control over project costs and improves the quality
of work performed. We own and operate two saturation diving systems and provide
support services for operations such as hook-up and structure abandonment,
including barge and logistic support, minimal steel fabrication, call-out diving
and the chartering of vessels.

In the deeper water markets, which we consider to be water depths in excess of
1,000 feet, that we have recently entered in the last few years, we provide
services analogous to the services we traditionally provide on the Shelf.

The following table sets forth our historical operating data for the periods
indicated:

<TABLE>
<CAPTION>
                                                       YEARS ENDED DECEMBER 31,
                                       --------------------------------------------------------
                                         2003        2002        2001        2000        1999
                                       --------    --------    --------    --------    --------
<S>                                    <C>         <C>         <C>         <C>         <C>
Pipelay: (1)
  Total mileage ....................        248         227         190         194         117
  Number of jobs ...................         52          63          66          64          31
  Water depth range (feet) .........   15-1,144      12-600      10-305       9-310       8-275
  Diameter range (inches) ..........       1-30        1-12        2-16        2-10        2-12
  Diameter range (as % of revenues):
    1"-3" ..........................         10%          2%          3%         11%         12%
    4"-6" ..........................         35%         58%         74%         72%         63%
    8"-10" .........................         23%         22%         17%         17%         22%
    12"+ ...........................         26%         14%          6%          0%          3%
    Umbilicals .....................          6%          4%          0%          0%          0%
 Average length per job (miles) ....        4.8         3.6         2.9         3.0         3.8
 Average revenue per mile ..........   $237,600    $256,300    $262,100    $207,800    $155,600
Other: (2)
  Number of jobs ...................          8          13          15           8          21
  Water depth range (feet) .........   30-1,800    48-7,200       5-500    50-3,700      15-328
  Average revenue per job ..........   $829,500    $755,500    $616,900    $737,400    $145,200
</TABLE>

(1)   Includes pipelines and umbilicals.

(2)   Includes inspection and maintenance services, pipeline tie-ins and
      tie-backs, riser installation, pipeline surveys, installation engineering,
      and integrated construction support.

INDUSTRY

General. The subsea construction industry installs and maintains platforms,
pipelines and subsea field development hardware for offshore oil and natural gas
producers. Demand for subsea construction services is driven primarily by:

-     worldwide demand for oil and natural gas and commodity prices;

-     discoveries of new reserves;

-     the amount of capital spending associated with developing new oil and
      natural gas fields;

-     the need to maintain and repair existing offshore production facilities
      during their economic life; and

-     regulatory requirements to remove production facilities after depletion of
      the fields.

                                      -5-
<PAGE>
In the life of an offshore field, capital is allocated to the development of a
well following a commercial discovery. The time required to drill an exploratory
well and formulate a development plan creates a time lag between the start of
drilling activities and increased demand for offshore construction services. The
time that elapses between a successfully drilled well and the development phase,
in which we participate, varies depending on the water depth of the field. Oil
and natural gas fields located on the Shelf may require from three to twelve
months from commencement of drilling activities to commercial development.
Deepwater fields typically require eighteen months to three years from
commencement of drilling activities to commercial development.

In addition to the influence that oil and natural gas prices have on demand,
seasonality also plays a role in the timing of contracts we receive and the
level of utilization for our vessels. A large portion of the contracts for
marine construction in the Gulf of Mexico are awarded in the early to late
summer and are usually performed before the adverse weather conditions of the
winter months commence, so many of the projects are completed within a
relatively short period of time. Therefore, the third and fourth quarter
earnings, as compared to the first and second quarters, are usually impacted by
these factors.

Because of the higher absolute cost of production in deepwater, activities
therein are primarily conducted by major oil and natural gas companies and a few
large independents and state-owned oil and natural gas operators. In the Gulf of
Mexico, the potential for the deepwater production of oil is much more prolific
than existing production on the Shelf and deepwater oil production typically
requires heavily insulated flowlines, which are higher in cost. The net effect
has been that, despite the high absolute costs of deepwater production, the
costs per barrel produced have been relatively modest.

Industry Spending. The amount of capital expended by oil and natural gas
companies fluctuates from year to year based upon various factors, many of which
are unpredictable, including past trends in oil and natural gas prices, current
prices and expectations about future prices. The independent oil and natural gas
operators tend to demonstrate more sensitivity to the fluctuation of commodity
prices than do the major oil and natural gas companies.

STRATEGY

We believe that we are well positioned to take advantage of activity in the Gulf
of Mexico and that our greatest long-term growth opportunities lie in the
natural extension of our niche services into the domestic and international
deepwater markets. Our strategy, therefore, is to continue to take advantage of
opportunities on the Shelf while expanding our niche services into the deepwater
markets of the world, including the Gulf of Mexico, Brazil and West Africa. We
intend to execute our strategy by:

-     maintaining a fleet of DP-2 vessels (the Midnight Express, Midnight
      Wrangler, Midnight Hunter, Midnight Eagle and Midnight Arrow) that have
      the capabilities to work in varying water depths (ranging from
      approximately 50 feet to 10,000 feet);

-     assuming contractual risk for weather delays on certain jobs because of
      the capabilities of these DP-2 vessels, thus providing us with what we
      believe is a competitive advantage in our marketplace;

-     focusing on projects involving small diameter infield flowlines and
      related infrastructure in the deepwater, analogous to our expertise on the
      Shelf;

-     utilizing our anchor-moored vessels only on certain shallow water jobs to
      maintain and build efficiencies into our total fleet for our customer
      base; and

-        leveraging our customer relationships.

                                      -6-
<PAGE>
We are building our fleet around the use of dynamic positioning (DP-2)
technology, in order to allow us to use DP-2 vessels in lieu of our anchored
vessels. All of our DP-2 vessels require fewer support vessels than
anchor-moored vessels and, with the exception of the Midnight Eagle, have a
ship-shaped hull which allows them to operate in more adverse weather conditions
than is typical of the conventional anchor-moored vessels. We intend to
capitalize on this competitive advantage by taking responsibility for weather
when bidding on prospective work to customers in certain circumstances. Although
this is a more aggressive approach, management feels this is a viable option
because of the capability of our DP-2 vessels to continue to work in seas where
a conventional anchor-moored vessel and its support vessels would have to head
back to shore.

Our expertise and experience in our market niche on the Shelf should provide us
with an advantage in the deepwater market worldwide as projects in deepwater
require many of the same types of services we currently provide on the Shelf.
For example, deepwater production facilities such as tension leg platforms,
spars, floating production units, and storage and offloading vessels all require
the extensive use of small diameter pipelines and umbilicals. These small
diameter lines provide similar functions in deepwater that they provide on the
Shelf.

Shelf Market Compared to Deepwater Market. There are a number of characteristics
about the deepwater market that differentiate it from the Shelf market.

On the Shelf, wells are generally drilled using conventional anchor-moored or
jack-up drilling rigs. Fixed platforms can be installed using conventional
anchor-moored construction vessels and semisubmersible vessels. Afterwards, the
pipeline and riser infrastructure can be installed using conventional
anchor-moored S-lay vessels and four-point anchored dive boats equipped with
mixed gas or saturation diving equipment. Collectively, these technologies are
mature, and, while there have been improvements, the basic processes have not
fundamentally changed in the past 25 to 30 years.

In the deepwater market, exploration and development techniques are
significantly different. Deepwater drilling and construction vessels are larger
and more sophisticated than vessels that work on the Shelf and are often
equipped with DP-2 systems that allow them to move or hold position within tight
tolerances without using conventional anchor-moorings. In addition, fixed
structures are replaced by either floating production systems or subsea
facilities in deepwater.

Several different physical configurations have been used for floating production
systems. In the Gulf of Mexico, tension leg platforms, spars, and floating
production units have been used. In other deepwater regions of the world,
floating production, storage and offloading vessels have also been used. Each of
these systems requires subsea field development hardware, including mooring
equipment, wellheads, subsea trees, manifolds, infield flowlines, risers and
infield umbilicals. We intend to focus our deepwater expansion efforts generally
on the installation of this equipment and particularly on the installation of
infield flowlines and related infrastructure, where we have analogous expertise
operating on the Shelf.

We believe that we have an advantage in our market niche on the Shelf because of
the cost efficiencies derived from the design and capabilities of our vessels
and because of our operating methodology, which takes advantage of our dive
support vessels and divers to complete riser and pipeline tie-ins without
impeding the progress of our pipelay barges. The vessels used to install
trunklines are larger and require larger crews than the vessels we operate,
making it less cost effective for them to compete with us for small diameter,
infield installation services. We believe that we can extend this methodology to
deepwater markets by employing vessels that are specially designed and equipped
to provide subsea construction niche services in the most efficient and cost
effective manner. In 2000, we completed the construction of a fully redundant,
DP-2 pipelay/bury barge (the Midnight Eagle) and chartered a new DP-2 subsea
construction vessel (the Midnight Arrow). In early 2002, we purchased a 520-foot
vessel that we are converting at the Davie Maritime, Inc. shipyard in Quebec,
Canada, into a DP-2 offshore construction vessel with our patented pipelay
system (the Midnight Express).

The pipelay system gives us the ability to lay certain lengths of products at
high laying rates from a reel, the ability to

                                      -7-
<PAGE>
lay considerable lengths of rigid pipelines without the need to come back to
dock to reload, the capacity to spool pipelines from an on-board firing line,
and the ability to J-lay pipelines or other products in order to minimize top
tension. The pipelay system includes a storage reel made of two drums operated
independently, each capable of storing up to 600 Te (metric tons) of product,
and a stern-laying tilting tower (from 65 degrees to 90 degrees) supporting,
from top to bottom, two bend controllers, two straighteners, a 160 Te tensioner,
two workstations, a hang-off clamp, a pipe monitoring system and a product
departure roller box. A six-station firing line will be installed on the deck of
the Midnight Express to fabricate pipeline stored on the reel. The vessel will
also be equipped with a 500-ton crane. The conversion of this vessel will make
it a new generation, specially designed and equipped deepwater pipelay and
subsea construction vessel capable of operating in water depths of up to 10,000
feet.

In March 2003, we purchased a cable-lay vessel that we modified into a versatile
deepwater pipelay and subsea construction vessel, the Midnight Wrangler. The
vessel is capable of laying rigid pipe, flexible pipe, coiled tubing and
umbilicals as well as providing light construction, diving and ROV support and
it has a 125-ton crane. Most recently, in January 2004, we entered into a new
charter agreement for the Midnight Hunter, a DP-2 dive support vessel that has a
60-ton crane with capabilities of working in deepwater, and we have equipped it
with one of our saturation diving systems.

There are two primary approaches to contracting for large marine development
projects. For a "best-in-class" contracting approach, the development is divided
into discrete functions, such as top-side fabrication, subsea fabrication,
installation of pipelines, other subsea installation, etc. The overall project
management group, which may be experts kept on staff at larger companies or may
be engineering and project management consulting firms hired on a
project-by-project basis, identifies qualified contractors for each type of work
and then coordinates and supervises the work program using these multiple
contractors.

The other major approach to project development is termed "EPIC" contracting
(engineer, procure, install, and commission). In EPIC contracting, a large
construction or engineering firm, or a group of large contractors in a
consortium, undertakes to deliver the completed project for a lump sum. That
contractor then directly performs those portions of the scope within its
capabilities and subcontracts out those where it does not have "in house" talent
or capacity. We do not seek to be an EPIC contractor; however, we will
subcontract to the EPIC contractor (the large engineering firm) for certain
portions of the portion within our capabilities.

Because deepwater exploration activity is conducted primarily by the major
integrated oil and natural gas companies, we believe that best-in-class
contracting will dominate the deepwater portions of our business activity. We
expect that we will be able to pre-qualify and to bid directly to the major
integrated oil and natural gas companies without having to provide other
engineering/contracting services. At the same time, on the Shelf, where
independent oil and natural gas operators predominate, we can continue to bid
through the engineering firms who provide project management and other EPIC
services to these clients.

Many of our existing customers are also active in deepwater exploration and
development. We intend to leverage our customer relationships to obtain
deepwater projects. In addition to our deepwater expansion strategy, we intend
to maintain a flexible fleet in order to take advantage of any increased
activity on the Shelf. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Business Environment."

OUR FLEET

At December 31, 2003, we operated a diversified fleet of ten construction and
service vessels. In January 2004, we entered into a new charter agreement for
the Midnight Hunter, a DP-2 dive support vessel with capabilities of working in
deepwater. We installed a 1,000-foot saturation system onboard the vessel and
are utilizing it in a dive support capacity on the Shelf and on deepwater
projects for ROV support work and light subsea construction work. In January
2002, we purchased the Smit Express, which has been renamed the Midnight
Express, and we are converting it into a DP-2 deepwater offshore construction
vessel with our patented pipelay system. The vessel is expected to enter our
active fleet in the second half of 2004. The following table summarizes the
capabilities of the

                                      -8-
<PAGE>
ten vessels in our fleet as of December 31, 2003 and the expected capabilities
of the Midnight Hunter and Midnight Express.

<TABLE>
<CAPTION>
VESSEL                              CAPABILITIES
------                              ------------
<S>                                 <C>
Midnight Arrow................      Diverless subsea construction in water
                                    depths of up to 10,000 feet.

Midnight Brave................      Simultaneous lay and bury of pipe up to 20"
                                    in diameter in water depths up to 400 feet.

Midnight Carrier..............      Subsea construction with surface supply or
                                    saturation diving.

Midnight Dancer...............      Subsea construction with surface supply
                                    diving.

Midnight Eagle................      Simultaneous lay and bury of pipe up to 8"
                                    in diameter in water depths of up to 100
                                    feet. Sequential lay and bury of pipe up to
                                    10" in diameter in water depths of up to 200
                                    feet. Also capable of saturation diving in
                                    depths up to 1,000 feet and ROV support and
                                    light construction work in up to 10,000
                                    feet.

Midnight Express..............      Designed to lay pipe up to 12" in diameter
                                    for rigid pipelines or 15" in diameter for
                                    flexible flowlines in water depths of up to
                                    10,000 feet and to provide diverless subsea
                                    construction support in water depths of up
                                    to 10,000 feet.

Midnight Fox..................      Personnel transport and support vessel
                                    (fuel, water, crew change).

Midnight Hunter...............      Shallow and saturation diving/subsea
                                    construction vessel with extended
                                    capabilities for weather endurance and
                                    project specific equipment/cargo.

Midnight Rider................
                                    Designed to lay pipe of up to 36" in
                                    diameter in water depths of up to 30 feet.
                                    Also capable of laying up to 10" diameter
                                    pipe in water depths up to 600 feet and up
                                    to 12" diameter pipe in water depths up to
                                    300 feet.

Midnight Runner...............      Simultaneous lay and bury of pipe up to 20"
                                    in diameter.

Midnight Star.................      Subsea construction with surface supply or
                                    saturation diving.

Midnight Wrangler.............      Designed to lay rigid pipe, flexible pipe,
                                    coiled tubing and umbilicals, utilizing up
                                    to four reels, and to provide light
                                    construction and ROV support in up to 10,000
                                    feet.
</TABLE>


MIDNIGHT ARROW -- DP-2 SUBSEA CONSTRUCTION VESSEL
The Midnight Arrow was delivered to us in early 2000 on a five-year charter.
Under the charter, we have an exclusive option to purchase the vessel for $8.25
million or the ability to extend the charter for an additional two years. The
vessel has a DP-2 system, accommodations for 54 workers, ROV capabilities to
approximately 10,000 feet, a helideck and a 45-ton crane. The vessel is 197 feet
long and 44 feet wide.

MIDNIGHT BRAVE -- PIPELAY/BURY BARGE

The Midnight Brave was purchased in 1987 and presently has a pipelay ramp, five
workstations, a stinger and a programmable logic controller 50 Kips tensioner.
The vessel is 275 feet long and 70 feet wide and has accommodations for 80
workers. It is controlled using a seven-point anchor-mooring system.

MIDNIGHT CARRIER -- DIVING SUPPORT VESSEL

The Midnight Carrier was a pipe carrier that we purchased in May 1998. We then
initiated a series of overhauls and

                                      -9-
<PAGE>
upgrades to allow the vessel's use as a large four-point diving support vessel.
We added a four-point anchor-mooring system and additional accommodations in
2000. The vessel is 270 feet long and 58 feet wide and accommodates 36 workers.

MIDNIGHT DANCER -- DIVING SUPPORT VESSEL

The Midnight Dancer was purchased in 1994 and presently has a 15-ton crane, a
10-ton crane, a four-point anchor-mooring system, an air diving system and
accommodations for 46 workers. The vessel is 195 feet long and 40 feet wide.

MIDNIGHT EAGLE -- DP-2 PIPELAY/BURY BARGE

The Midnight Eagle was purchased in 1997 and placed in service in 2000 after
adding a DP-2 system, a 20-foot hull mid-section, two 10-foot wide sponsons,
four diesel driven azimuthing thrusters, a mooring/abandonment and recovery
winch, accommodations for 57 workers, generators and ancillary equipment. A
conventional firing line consisting of four workstations for S-lay and a
650-foot saturation diving system were also added. The vessel is 190 feet long
and 76 feet wide.

MIDNIGHT EXPRESS (SMIT EXPRESS) -- DP-2 PIPELAY/SUBSEA CONSTRUCTION VESSEL

The Smit Express was a LASH (Lighter Aboard Ship) barge transporter. We
purchased the vessel for $9.75 million in January 2002 and plan to place the
vessel into service in the second half of 2004 pending the completion of the
conversion and sea trials. The ship is 520 feet long overall with a breadth of
100 feet. The conversion will equip the vessel with our patented pipelay system,
a DP-2 system, a 2,500 square meter working deck that will increase the ship
freeboard to nearly 14 feet, a 12 megawatt (MW) diesel electric generating
plant, stern azimuthing Z-drives and bow thrusters, ship services for project
requirements, a 500-ton King Post crane, a 120-ton gantry crane, two abandonment
and recovery winches (capabilities to approximately 10,000 feet), a helideck for
an S-61, accommodations for 132 people, and 5 offices. The vessel also has the
capability to hold two 3,000-meter working class ROV's.

MIDNIGHT FOX -- SUPPLY SUPPORT VESSEL

Built in 1998, the Midnight Fox is 130 feet long and 28 feet wide and is
equipped with a bow thruster. Its present primary role is as a personnel
transport and supply vessel supporting the rest of our fleet.

MIDNIGHT HUNTER -- DP-2 DIVING SUPPORT/SUBSEA CONSTRUCTION VESSEL

The vessel has been re-acquired on long-term charter to house our 1,000-foot
saturation diving system. The vessel is 340 feet long overall and has a combined
diesel-diesel electric engine and full DP-2 capabilities. The DP-2 capabilities
are provided by three forward tunnel thrusters, one stern thruster and two aft
azimuthing thrusters. The vessel has a large construction platform with a
moonpool (25 feet x 20 feet) over which the saturation diving bell is deployed.
In addition, the vessel has two cranes to support construction activities on the
working deck.

MIDNIGHT RIDER -- PIPELAY/BURY BARGE

Built in 1995, the vessel is equipped to lay and bury pipe using the
conventional S-lay method. Equipped with five workstations, the vessel features
a 50-foot stinger and a 50 Kips tensioner. The vessel is 260 feet long and 72
feet wide, has accommodations for up to 84 workers and is controlled using an
eight-point mooring system. The vessel is also capable of utilizing spuds in
shallow water.

MIDNIGHT RUNNER -- PIPELAY/BURY BARGE

The Midnight Runner was built in 1983 and presently has two spuds, four
workstations, a 30 Kips tensioner, generators and ancillary equipment as well as
accommodations for 30 workers. The vessel is 160 feet long and 54 feet wide.

MIDNIGHT STAR -- DIVING SUPPORT VESSEL

The Midnight Star was purchased in 1997 and presently has a four-point mooring
system, a moonpool, an air diving control room, two 15-ton cranes and
accommodations for 42 workers. The vessel is 197 feet long and 42 feet wide.

                                      -10-
<PAGE>
MIDNIGHT WRANGLER -- DP-2 PIPELAY/SUBSEA CONSTRUCTION VESSEL

The Midnight Wrangler was purchased in 2003 as a deepwater pipelay and subsea
construction vessel. The vessel is 341 feet long and 64 feet wide and is
equipped with a DP-2 system, a 125-ton crane and accommodations for 73 workers.
The vessel is capable of laying rigid pipe, coiled tubing and umbilicals,
utilizing up to four reels and is capable of providing subsea construction,
surface diving and ROV support in water depths up to 10,000 feet. Currently, the
vessel has a third party ROV installed as part of a long-term commitment.

In addition, we purchased the Midnight Gator, a supply barge, in September 2002.
We have converted this piece of equipment into a pipeline burial dredge and it
became available for use during the second quarter of 2003 for the purpose of
jetting trenches for pipe burial in shallow waters. This barge is not included
in our vessel utilization statistics.

SAFETY & QUALITY ASSURANCE

We believe a successful safety program is both a necessity and an invaluable
asset. We maintain our Health, Safety and Environmental (HS&E) Management System
to reduce the possibility of accidents, mechanical occurrences and environmental
incidents. Our HS&E Management System establishes guidelines to ensure
compliance with all applicable state and federal guidelines and provides
training and safety education through new employee orientations, which include
first aid and CPR training. In addition, prospective employees are required to
submit to alcohol and drug testing and all employees are subject to random
testing. Our HS&E Management System encompasses everything from simple rules,
regulations and job safety analyses to our more sophisticated peer assisted
leadership and critical task familiarization programs. Employees who do not
adhere to our health, safety and environmental guidelines could face immediate
termination. We believe that the HS&E Management System is very effective in
mitigating exposure and averting losses, while helping to attract and retain
customers and employees.

Industry associations, government regulators and our peers have recognized our
commitment to safety. In 2002, we earned compliance with the Department of
Transportation's Operator Qualification Program and, in June 2003, we were
awarded an International Safety Management (ISM) Certification by the American
Bureau of Shipping. In 2004, 2001 and 2000, we received special recognition by
the National Ocean Industries Association, the primary trade organization for
the offshore services industry. We have also received commendations in 2001 from
the United States Coast Guard (the "Coast Guard"), the Minerals Management
Service (the "MMS") and the Marine Board of the National Research Council for
our significant safety achievements and continuing dedication to the safety of
life at sea. The Coast Guard also honored us in 2000 with a Certificate of
Appreciation in recognition of notable services that have assisted greatly in
furthering the aims and functions of the Coast Guard and for outstanding and
innovative efforts in promoting offshore safety.

CUSTOMERS & CONTRACTING

Our customers are primarily major oil and natural gas companies and independent
oil and natural gas operators working in the Gulf of Mexico. During 2003 and
2002, we provided subsea construction services to 36 and 37 customers,
respectively. Two customers, Stolt Offshore, Inc. and LLOG Exploration Offshore,
Inc., each accounted for more than 10% of our revenues in the year ended
December 31, 2003, and no individual customer accounted for more than 10% of our
revenues in the year ended December 31, 2002. The level of construction services
required by any particular customer depends on the size of that customer's
capital expenditure budget devoted to development in any particular year.
Consequently, customers that account for a significant portion of contract
revenues in one fiscal year may represent an immaterial portion of contract
revenues in a subsequent fiscal year. Presently, our construction contracts are
typically of short duration, ranging from several days to two months.

We are normally awarded contracts from our customers by means of a competitive
bidding process whereby customers typically request bids a few weeks to a few
months prior to commencement of a project. Customers usually request bids from
all companies that they believe are technically qualified to perform the
project. In order to

                                      -11-
<PAGE>
ensure that we have an opportunity to bid for these projects, our marketing
staff maintains contacts with offshore operators as well as with the independent
engineering firms that manage their construction projects. We maintain a focused
marketing effort through a dedicated sales force that provides localized efforts
in Houston, Texas and southeastern Louisiana. We also maintain an up-to-date
database of market studies and statistical bidding analyses.

Most contracts are awarded on a fixed-price basis, but we also perform work
under "cost-plus" and "day rate" arrangements as well as under hybrids of these
arrangements. Under fixed-price contracts, we provide specified services at a
fixed price regardless of the amount of time and materials actually required. As
a result, we are responsible for all cost overruns. Consequently, although
fixed-price contracts may offer greater potential profits, they also involve
more risk than a cost-plus arrangement. Under cost-plus arrangements, we receive
a specified fee in excess of the direct labor and material costs incurred. We
are therefore protected against cost overruns, but do not benefit directly from
cost savings. For projects involving day rate arrangements, our charges are
based upon a rate schedule for the services provided.

As we expand our operations into the deepwater market, the typical contract
profile is likely to change so that lead time, duration and our backlog of
awarded but unexecuted projects will increase. We also expect that a larger
portion of our contracts will be with major oil and natural gas companies as the
deepwater market continues to develop and as our fleet expands in 2004 and
beyond.

ALLIANCE AGREEMENT

From May 1999 through December 2003, we operated under an alliance agreement
with Unocal under which we provided at least 80% of the pipelay, burial and
riser installation projects for Unocal's operations in the Gulf of Mexico in
water depths of up to 200 feet. Unocal conducts exploration, development and
production activities on the Shelf and deepwater areas of the Gulf of Mexico.
The alliance with Unocal expired in December 2003 and was not renewed. This
alliance represented 2.5%, 3.9% and 8.0% of our revenues in 2003, 2002 and 2001,
respectively.

COMPETITION

The offshore marine construction industry is highly competitive. While we
believe that availability, capability of equipment and personnel, the reputation
and experience of management, and the efficiency and safety record of the
contractor are important factors in this industry, price is the primary factor
that determines which contractor is awarded the contract. Contracts for work on
the Shelf are typically awarded on a competitive bid basis one to three months
prior to commencement of operations.

The lower degree of complexity and capital costs involved in Shelf marine
construction activities has allowed many entrants into that subsegment of the
market, most of whom are involved only in Shelf activities. There are relatively
few barriers to entry and older installation equipment is typical of many
companies. In addition, companies are differentiated by their capabilities to
perform "offshore" versus only "inshore," or in state waters projects. For
conventional offshore pipelay projects on the Shelf, we primarily compete with
Broussard Brothers, Inc., Chet Morrison Contractors, Inc., Diamond Services,
Global Industries, Ltd. and Horizon Offshore, Inc., although Stolt Offshore S.A.
and Saipem S.p.A. also maintain a presence in this market.

For deepwater pipelay projects, the barriers to entry are numerous; the projects
are both engineering and capital intensive, with project durations measured in
years rather than months. The vessels are capital intensive and the supporting
technology is not widely distributed. In the deepwater, the major pipelay
competitors are foreign companies that include Technip-Coflexip, Stolt Offshore
S.A., Saipem S.p.A. (including Saibos), Allseas Group S.A., and Heerema Group.
Some of the domestic deepwater contractors include Halliburton-Subsea 7,
McDermott International, Inc., Global Industries, Ltd. and Cal Dive
International, Inc. We believe we are able to differentiate ourselves from this
competition by having an efficient fleet with a relatively low capital
structure, which is a function of maintaining focus on our specialty of infield
flowlines and tie-backs.

                                      -12-
<PAGE>
BACKLOG

We do not consider our backlog amounts to be a reliable indicator of future
revenue because most of our Shelf-based contracts are awarded and performed
within a relatively short period of time. Thus, our backlog can fluctuate
significantly based on the level of drilling activity on the Shelf, the timing
of contract awards and the seasonal operating activity level throughout the
year. If deepwater projects become more prevalent in our product mix, we expect
to see an increased backlog because these projects have longer lead times than
their Shelf-based counterparts.

PATENTS

We have received two patents for various aspects of our deepwater pipeline lay
system that was designed by Lyle G. Stockstill, Chairman of the Board and Chief
Executive Officer. The patent numbers as issued by the United States Patent
Office are 6,554,538 and 6,702,519. It is the intent of the Company to install
this patented pipeline lay system onboard the Midnight Express. Although we
believe this technology provides us with a competitive advantage in the
deepwater market, we do not regard patent protection on such pipeline lay system
as critical or essential to our business.

EMPLOYEES

As of December 31, 2003, we had a total of 368 employees. Approximately 316 were
operating personnel and 52 were corporate, administrative and management
personnel. None of our employees belong to a union or are employed pursuant to
any collective bargaining agreement or any similar arrangement.

GOVERNMENT AND ENVIRONMENTAL REGULATION

General. Many aspects of our offshore marine construction industry are subject
to extensive governmental regulation by the Coast Guard, the National
Transportation Safety Board, the United States Customs Service (the "Customs
Service"), and the Occupational Safety and Health Administration, as well as by
private industry organizations such as the American Bureau of Shipping. The
Coast Guard and the National Transportation Safety Board set safety standards
and are authorized to investigate vessel accidents and recommend improved safety
standards, and the Customs Service is authorized to inspect vessels at will. The
Occupational Safety and Health Administration performs similar functions with
respect to both offshore and onshore facilities.

We are required by certain governmental and quasi-governmental agencies to
obtain various permits, licenses and certificates with respect to our
operations. We believe that we have obtained or will be able to obtain, when
required, all permits, licenses and certificates necessary to conduct our
business.

Maritime. Some of our employees are covered by provisions of the Jones Act, the
Death on the High Seas Act and general maritime law. Other non-maritime
employees are covered by the U.S. Longshoremen and Harbor Workers Compensation
Act. These laws typically operate to make liability limits established by state
workers' compensation laws inapplicable to these employees and to permit these
employees and their representatives to pursue actions against employers for job
related injuries in federal and state courts. Since we are not protected by the
limits imposed by state workers' compensation statutes, we may have greater
exposure for any claim made by such employees.

Because we engage in certain activities that may constitute "coastwise trade"
within the meaning of federal maritime regulations, we are also subject to
regulation by the United States Department of Transportation Maritime
Administration (MARAD), in addition to the Coast Guard and the Customs Service.
Under these regulations, only vessels owned by United States citizens which are
built and registered under the laws of the United States may engage in
"coastwise trade." Furthermore, the foregoing citizenship requirements must be
met in order for us to qualify for financing guaranteed by MARAD. To enjoy the
benefits of United States registry, United States coastwise trade and
MARAD-guaranteed financing, we must maintain United States citizenship as
defined in the Shipping Act of 1916 and the regulations thereunder. Under these
regulations, to maintain United States citizenship, our president

                                      -13-
<PAGE>
or chief executive officer, the chairman of our board of directors and a
majority of a quorum of our board of directors must be United States citizens.
Further, at least 75% of the ownership and voting power of our capital stock
must be held by United States citizens, as defined in the Shipping Act and the
regulations thereunder.

Environmental. Numerous federal, state and local laws and regulations relating
to protection of the environment affect our operations. The technical
requirements of these laws and regulations have become more complex and
stringent in recent years, and compliance is becoming increasingly difficult and
expensive. However, we do not believe that compliance with current environmental
laws and regulations is likely to have a material adverse affect on our business
or financial condition. Some environmental laws provide for strict liability for
remediation of spills and releases of hazardous substances, including oil, into
the environment, and some impose liability for damages to natural resources or
threats to public health and safety. Sanctions for noncompliance may include
revocation of permits, corrective action orders, administrative or civil
penalties, and criminal prosecution. It is possible that changes in the
environmental laws and enforcement policies under these laws, or claims for
damages to persons, property, natural resources or the environment, could result
in substantial costs and liabilities. Our insurance policies provide liability
coverage for sudden and accidental occurrences of pollution and/or cleanup and
containment of the foregoing in amounts that we believe are comparable to policy
limits carried by others in the offshore construction industry.

The Oil Pollution Act of 1990 (the "Oil Pollution Act") and regulations
promulgated thereunder impose a variety of regulations on "responsible parties"
related to the prevention of oil spills and liability for damages resulting from
such spills. A "responsible party" includes the owner or operator of an onshore
facility, pipeline, or vessel, or the lessee or permittee of the area in which
an offshore facility is located. The Oil Pollution Act assigns maximum potential
liability to each responsible party for oil removal costs and a variety of
public and private damages. Vessels subject to the Oil Pollution Act, other than
tank vessels, are subject to liability limits of the greater of $500,000 or $600
per gross ton. A party cannot take advantage of liability limits if the spill
was caused by gross negligence or willful misconduct or resulted from violation
of a federal safety, construction or operating regulation. If the party fails to
report a spill or to cooperate fully in the cleanup, the liability limits
likewise do not apply. Few defenses exist to the liability imposed under the Oil
Pollution Act. The Oil Pollution Act also imposes ongoing requirements on a
responsible party including preparation of an oil spill contingency plan and
proof of financial responsibility (to cover at least some costs in a potential
spill) for vessels in excess of 300 gross tons. We believe that we currently
have in place appropriate spill contingency plans and have established adequate
proof of financial responsibility for our vessels.

The Clean Water Act and analogous state laws provide strict controls on the
discharge of pollutants into the navigable waters of the United States and
impose liability for the costs of remediating releases of petroleum and other
hazardous substances. These laws provide for administrative, civil and criminal
penalties for any unauthorized discharge of oil and other hazardous substances
in reportable quantities and impose substantial potential liability for the
costs of removal, remediation and damages. Our vessels routinely transport small
amounts of hazardous substances and also carry diesel fuel for their own use.
All vessels we operate have vessel response plans to deal with potential spills
of hazardous substances including oil or its derivatives.

The Outer Continental Shelf Lands Act provides the federal government with broad
discretion in regulating the release of oil and natural gas in connection with
offshore oil and natural gas production. Because our operations rely on offshore
oil and natural gas exploration and production, if the government were to
exercise its authority under the Outer Continental Shelf Lands Act to restrict
the availability of offshore oil and natural gas leases, such an action could
have a material adverse effect on our financial condition.

                                      -14-
<PAGE>
The Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) and similar laws impose liability for releases of hazardous substances
into the environment. CERCLA currently exempts crude oil from the definition of
hazardous substances for purposes of the statute, but our operations may involve
the use or handling of other materials that may be classified as hazardous
substances. CERCLA assigns strict liability to each responsible party for all
response and remediation costs, as well as natural resource damages. Few
defenses exist to the liability imposed by CERCLA. We are not currently aware of
any events that, if brought to the attention of regulatory authorities, would
lead to the imposition of CERCLA liability.

Exploration and Production Industry. We depend on the demand for our services
from the oil and natural gas industry. Therefore, changes to laws, regulations,
taxes and policies relating to the oil and natural gas industry can also affect
our business. For example, the exploration and development of oil and natural
gas properties located on the Outer Continental Shelf of the United States is
regulated primarily by the MMS. The MMS has broad authority over such
operations. It must approve and grant permits in connection with drilling and
development plans submitted by oil and natural gas companies. Additionally, the
MMS has promulgated regulations requiring offshore production facilities to meet
stringent engineering and construction specifications restricting the flaring or
venting of natural gas, governing the plugging and abandonment of wells, and
controlling the removal of production facilities. Further, under some
circumstances, the MMS has the authority to require the suspension or
termination of any operations on federal leases, and has proposed regulations
that would permit it to expel unsafe operators from offshore operations. The MMS
also has established rules governing the calculation of royalties and the
valuation of crude oil produced from federal offshore leases. The MMS has issued
regulations regarding costs for natural gas transportation, which are deductible
for royalty valuation purposes when natural gas is sold off lease. Delays in the
approval of plans and issuance of permits by the MMS because of staffing,
economic, environmental or other reasons could adversely affect our operations
by limiting demand for our services. We cannot predict how the MMS regulations
may be amended in the future. However, any change in MMS regulations that
adversely affects offshore oil and natural gas operations has the potential to
limit demand for our services and adversely impact our future operations and
earnings.

Other federal agencies like the Federal Energy Regulatory Commission and state
authorities continue to heavily regulate the natural gas transportation market.
These regulations affect the price and terms for access to pipeline
transportation and the economics of natural gas production, transportation and
sales. To a lesser degree, transportation of crude oil by pipeline is also
subject to regulation. Any changes in these regulations that adversely affect
the market for natural gas or crude oil may adversely affect our business by
limiting demand for our services.

INSURANCE

Our operations are subject to the risks inherent in offshore marine activity.
These risks include personal injury and loss of life or property, environmental
accidents, mechanical failures and collisions. Damages arising from an
occurrence may in the future result in the assertion of potentially large claims
against us.

We maintain comprehensive insurance covering our assets and operations,
including marine employers' liability insurance and workers' compensation, at
levels we believe are consistent with industry standards. Our workers'
compensation and marine employers' liability insurance includes U.S.
Longshoremen and Harbor Workers Compensation Act and outer continental shelf
endorsements. In addition to our primary liability insurance, we maintain excess
and umbrella policies for up to a $30.0 million limit per occurrence and in the
aggregate. We also maintain other coverage for water pollution, automobile,
property, hull and commercial crimes. We believe that some risks are not
insurable, or that insurance to cover such risks is available only at rates that
we do not consider to be commercially reasonable. For example, we generally do
not maintain insurance in amounts that would provide for replacement of a vessel
in the case of a total loss. We cannot assure you that our insurance coverage
will be adequate in all circumstances or against all hazards, nor can we assure
you that we will be able to maintain adequate insurance coverage in the future
at commercially reasonable rates or on acceptable terms.

                                      -15-
<PAGE>
EXECUTIVE OFFICERS

The following table provides information regarding our executive officers as of
April 12, 2004:

<TABLE>
<CAPTION>
NAME                        AGE  POSITION(S)
----                        ---  -----------
<S>                         <C>  <C>
Lyle G. Stockstill ......   60   Chairman of the Board and Chief Executive Officer
Lana J. Hingle Stockstill   60   Chief Administrative Officer, Secretary and Director
Robert E. Fulton ........   53   Chief Financial Officer
Willie Bergeron .........   54   Chief Operating Officer
Thomas P. Budde .........   54   Senior Vice President - Administration
Patrice Chemin ..........   56   Vice President - International Business Development
</TABLE>

Lyle G. Stockstill is one of our co-founders and has served as our Chairman of
the Board and Chief Executive Officer since 1978. Mr. Stockstill has over 39
years of experience in all aspects of offshore pipelay and construction
operations. Mr. Stockstill has previously held positions at Brown & Root, Inc.
and Taylor Diving, Inc. and has worked both domestically and internationally.
Mr. Stockstill is the husband of Lana J. Hingle Stockstill.

Lana J. Hingle Stockstill is one of our co-founders and has served as Senior
Vice President - Administration, Secretary and as a director since 1978. In
March 2003, her title was changed to Chief Administrative Officer. Mrs.
Stockstill has 31 years of experience handling our administrative duties and the
administrative duties of other oil service companies. Mrs. Stockstill holds a
Bachelor of Arts degree from Louisiana State University. Mrs. Stockstill is the
wife of Lyle G. Stockstill.

Robert E. Fulton has served as our Chief Financial Officer since August 2002.
From April 2001 to July 2002, Mr. Fulton was employed by Global Industries,
Ltd., an oilfield services and pipeline construction company, as Vice President
and Treasurer. From January 1980 to March 2001, Mr. Fulton was employed by
McDermott International, Inc., an international offshore contractor, in various
finance positions, most recently serving as Assistant Treasurer. Mr. Fulton has
30 years of domestic and international finance experience and holds a Bachelor
of Arts degree from the University of Notre Dame and a MBA Degree from the
American Graduate School of International Management (Thunderbird).

Willie Bergeron joined our company in September 1995 as a Project Manager. Mr.
Bergeron was promoted to General Manager of Operations in December 1997 and then
to General Manager - Shallow Water Division in March 1999. In September 2000,
Mr. Bergeron was promoted to Operations Manager for both shallow and deepwater
activities and in July 2001 was promoted to Vice President - Operations. In
March 2003, his title was changed to Chief Operating Officer. From 1988 to 1995,
Mr. Bergeron was employed in the areas of operations management and engineering
by McDermott International, Inc. Prior to that, Mr. Bergeron co-owned a civil
engineering firm that conducted offshore, commercial and residential
engineering. Mr. Bergeron has 26 years of oilfield related experience and holds
a degree in Engineering Technology from Nicholls State University.

Thomas P. Budde joined our company in April 2003 as the Senior Vice President -
Administration. From January 2000 to April 2003, Mr. Budde served as the Chief
Financial Officer of Gibbs Construction. Mr. Budde was employed by General
Marine Leasing, Inc. as the Chief Financial Officer and Executive Vice President
from November 1997 to November 1998. Prior to that, Mr. Budde held several
positions with Diversified Group, Inc. from September 1984 to June 1989,
including Chief Financial Officer and Executive Vice President. Mr. Budde holds
a Bachelor of Science degree in Accounting from the University of New Orleans.

Patrice Chemin re-joined our company in September 2003 as the Vice President -
International Business Development. Mr. Chemin was previously with our company
from December 1997 to December 2000 as the President. In the interim, Mr. Chemin
served as the Manager of Business Development and Marketing for Consolidated
Contractors Company (CCC) of Athens, Greece. Mr. Chemin has over 30 years of
oilfield related experience and extensive experience in the international marine
construction market, including employment with

                                      -16-
<PAGE>
Stolt Comex Seaway Inc. in Indonesia, Singapore, Norway, Scotland, Gabon and the
United Arab Emirates.

ITEM 2. PROPERTIES

FLEET

For information regarding our vessels, please read "Item 1. Business - Our
Fleet," which information is incorporated herein by reference.

FACILITIES

Our corporate headquarters are located in Gretna, Louisiana, near New Orleans.
We also maintain a commercial office in Houston, Texas, a logistics support base
and fabrication yard in Dulac, Louisiana, and a rental property for client and
provider entertainment purposes in Empire, Louisiana. All of our facilities are
leased. The following chart describes our facilities as of December 31, 2003:

<TABLE>
<CAPTION>
                                                           APPROXIMATE      TERMINATION
LOCATION                               FUNCTION               SIZE         DATE OF LEASE
------------------------------   ----------------------   --------------   -------------
<S>                              <C>                      <C>              <C>
Gretna, Louisiana ............   Corporate Office         13,400 sq. ft.   December 2005
Houston, Texas ...............   Commercial Office         4,200 sq. ft.   January 2004
Dulac, Louisiana .............   Logistics Support Base       21.9 acres   October 2006
                                 and Fabrication Yard
Empire, Louisiana ............   Client and Provider       2,400 sq. ft.   December 2007
                                 Entertainment Facility
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

We have been named as a defendant in a stockholder class action suit filed by
purported stockholders regarding our initial public offering. This lawsuit, Karl
L. Kapps, et. al. v. Torch Offshore, Inc. et. al., No. 02-00582, which seeks
unspecified monetary damages, was filed on March 1, 2002 in the United States
District Court for the Eastern District of Louisiana. The lawsuit was dismissed
on December 19, 2002 for failure to state a claim upon which relief could be
granted. The plaintiffs have appealed to the United States Court of Appeals for
the Fifth Circuit. Oral arguments have been completed and we are awaiting the
decision of the Court. We believe the allegations in this lawsuit are without
merit and we continue to vigorously defend this lawsuit. Even so, an adverse
outcome in this class action litigation could have a material adverse effect on
our financial condition or results of operations.

We were named as a defendant in a lawsuit (Bluffview Capital, LP v. Torch
Offshore, Inc., No. 2002-7662, filed in the 134th Judicial District Court,
Dallas County, Texas on August 26, 2002) brought by a former service provider.
The plaintiff was originally hired to assist us in obtaining financing, among
other services. We terminated the relationship and disputed the plaintiff's
interpretation of certain provisions regarding the services to be provided and
the calculation of fees allegedly earned. The case was settled in October 2003
with no significant impact on our results of operations.

We terminated our charter of the Midnight Hunter on January 24, 2003, as, among
other things, the vessel did not meet certain specifications as outlined in the
charter agreement and this prevented us from performing some types of work. In
November 2003, a London arbitrator issued a ruling against our recission claim,
finding that we were not entitled to terminate the charter, but did rule in
favor of us on the warranty claim for breach of contract. An interim award of
$2.2 million was made in favor of Cable Shipping, Inc. and such amount was
placed in escrow pending further proceedings. We have recorded the full amount
of the interim award in the financial statements as of December 31, 2003. We
attempted to appeal the ruling, but on April 7, 2004 the appeal was denied. The
escrowed award will now be released to Cable Shipping, Inc. Each party will now
make submissions as to quantum of damages for the claim upon which it was
successful and a further hearing will be held. Additional amounts awarded to the
parties

                                      -17-
<PAGE>
will likely be netted in favor of Cable Shipping, Inc. While an estimate of the
net impact of the damages to be awarded with respect to this matter is not
currently quantifiable, it is possible that future damages to be awarded to
Cable Shipping, Inc. in this matter could have a material adverse effect on our
financial condition and/or results of operations.

We filed a lawsuit (Torch Offshore, Inc. v. Newfield Exploration Company, No.
03-0735, filed in the United States District Court, Eastern District of
Louisiana on March 13, 2003) against Newfield Exploration Company (Newfield)
claiming damages of approximately $2.1 million related to work completed for
Newfield in the Gulf of Mexico at Grand Isle Block 103-A. Our lawsuit alleges
that we did not receive all compensation to which we were entitled pursuant to
the contract. As of December 31, 2003, we have written off the full amount of
this claim. However, we intend to continue to pursue this claim.

In July 2003, we filed a lawsuit (Torch Offshore, Inc. et al v. Stolt Offshore,
Inc., et al, No. 03-1915, in the United States District Court, Eastern District
of Louisiana on July 3, 2003) against Stolt Offshore, Inc. (Stolt), and its
customer, seeking approximately $7.6 million related to work completed for Stolt
in Boston, Massachusetts. We worked as a subcontractor to Stolt, who was engaged
by Algonquin Gas Transmission Company to complete the Boston Hubline project, an
underwater pipeline crossing the Boston Harbor. The lawsuit alleged that we did
not receive all compensation to which we were entitled pursuant to the
subcontract we had with Stolt. Two other subcontractors to Stolt joined with us
and filed as plaintiffs in the lawsuit. Additionally, we, along with two other
subcontractors, filed a lawsuit in Massachusetts (Civil Action No. 03-01585),
which included a claim for breach of contract as well as a claim to assert
mechanics' liens against Algonquin's easement located in Weymouth, Norfolk
County, Massachusetts. In March 2004, we reached a settlement with Stolt in the
amount of $6.2 million and we have recorded the full amount of the difference
between our original claim and the final settlement (a loss of approximately
$1.4 million) in our financial statements as of December 31, 2003. The lawsuits
have been dismissed and the lien claims have been released.

Additionally, due to the nature of our business, we are, from time to time,
involved in routine litigation or subject to disputes or claims related to our
business activities (other miscellaneous litigation). In our management's
opinion, none of this other miscellaneous litigation will have a material
adverse effect on our financial condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our stockholders during the quarter ended
December 31, 2003.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock, $0.01 par value, is traded on the NASDAQ National Market
System under the symbol "TORC". At April 12, 2004, there were approximately
1,400 holders of record of our common stock.

The following table sets forth the high and low bid price per share of our
common stock, as reported by the NASDAQ National Market, for each fiscal quarter
in 2002 and 2003:

<TABLE>
<CAPTION>
                                                                    HIGH    LOW
                                                                    ----    ---
<S>                                                                <C>     <C>
2004
Second Quarter (through April 12, 2004).........................   $4.25   $3.63
First Quarter...................................................   $6.37   $3.59

2003
Fourth Quarter..................................................   $6.47   $5.00
Third Quarter...................................................   $7.58   $5.80
Second Quarter..................................................   $7.50   $4.85
</TABLE>

                                      -18-
<PAGE>
<TABLE>
<S>                                                                <C>     <C>
First Quarter...................................................   $6.19   $4.90

2002
Fourth Quarter..................................................   $5.79   $4.31
Third Quarter...................................................   $7.95   $4.77
Second Quarter..................................................   $9.54   $7.14
First Quarter...................................................   $9.25   $5.45
</TABLE>

We do not intend to pay cash dividends on our common stock for the foreseeable
future. We currently intend to retain earnings, if any, for the future operation
and development of our business. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations."

ITEM 6. SELECTED FINANCIAL DATA

The following table presents selected financial and operating data of Torch
Offshore, Inc. for the periods shown. You should read the following data in
conjunction with the more detailed information appearing in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements, including the notes thereto, appearing
elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
(in thousands, except per share
and operating data)                                                   YEARS ENDED DECEMBER 31,
                                                   -------------------------------------------------------------
STATEMENT OF OPERATIONS DATA                          2003         2002         2001         2000         1999
                                                   ---------    ---------    ---------    ---------    ---------
<S>                                                <C>          <C>          <C>          <C>          <C>
Revenues .......................................   $  65,557    $  67,990    $  59,052    $  46,205    $  21,252
Cost of sales ..................................      59,170       53,341       43,190       34,011       21,190
                                                   ---------    ---------    ---------    ---------    ---------
Gross profit(1) ................................       6,387       14,649       15,862       12,194           62
Depreciation and amortization ..................       9,368        7,540        6,376        4,941        3,469
General and administrative .....................       6,536        4,767        3,982        3,759        3,327
Other operating expense ........................       3,518        1,966          950          954        1,741
                                                   ---------    ---------    ---------    ---------    ---------
Operating income (loss) ........................   $ (13,035)   $     376    $   4,554    $   2,540    $  (8,475)
                                                   =========    =========    =========    =========    =========
Interest income (expense), net .................           1          232       (1,174)      (3,813)      (1,413)
Gain (loss) on early retirement of debt ........         885           --         (766)          --         (676)
Net income (loss) attributable to
  common stockholders ..........................   $  (9,226)   $     395    $    (741)   $  (1,578)   $ (10,568)
                                                   =========    =========    =========    =========    =========
Earnings (loss) per share:
  Basic ........................................   $   (0.73)   $    0.03    $   (0.07)   $   (0.21)   $   (1.41)
                                                   =========    =========    =========    =========    =========
  Diluted ......................................   $   (0.73)   $    0.03    $   (0.07)   $   (0.21)   $   (1.41)
                                                   =========    =========    =========    =========    =========
Common equivalent shares:
  Basic ........................................      12,637       12,692       10,845        7,505        7,505
                                                   =========    =========    =========    =========    =========
  Diluted ......................................      12,637       12,695       10,845        7,505        7,505
                                                   =========    =========    =========    =========    =========
Cash dividends per common share ................   $      --    $      --    $      --    $      --    $    0.04
                                                   =========    =========    =========    =========    =========

OTHER FINANCIAL DATA

EBITDA, As Adjusted, Recap:
  Net income (loss) attributable to common
   stockholders ................................   $  (9,226)   $     395    $    (741)   $  (1,578)   $ (10,568)
  Income tax expense (benefit) .................      (2,923)         213        3,165
                                                                                                 --            4
  Interest (income) expense ....................          (1)        (232)       1,174        3,813        1,413
  Depreciation and amortization ................       9,368        7,540        6,376        4,941        3,469
  Preferred unit dividends and accretion .......          --           --          190          305           --
  Vessel charges ...............................          --        1,052          950           --           --
                                                   ---------    ---------    ---------    ---------    ---------
EBITDA, As Adjusted(2) .........................   $  (2,782)   $   8,968    $  11,114    $   7,481    $  (5,682)
                                                   =========    =========    =========    =========    =========
</TABLE>

                                      -19-
<PAGE>
<TABLE>
<S>                                                <C>          <C>          <C>          <C>          <C>
Net cash provided by (used in):
  Operating activities .........................      10,594       (2,279)       2,419        1,746       (4,206)
  Investing activities .........................     (72,753)     (24,229)     (13,741)      (2,538)      (6,451)
  Financing activities .........................      61,873        2,342       34,929          463       11,557

BALANCE SHEET DATA (AT END OF PERIOD)

Working capital (deficit)(3) ...................   $ (55,036)   $  12,018    $  30,641    $ (10,103)   $  (7,772)
Property, net ..................................     143,266       67,561       49,179       40,202       41,120
Total assets ...................................     169,906      101,904       92,755       57,988       54,069
Long-term debt, excluding current portion ......      20,057           46           --       23,957       29,522
Mandatorily redeemable convertible
  preferred units(4) ...........................          --           --           --        4,678           --
Stockholders' equity ...........................      70,732       79,867       81,041        6,311        7,889

OPERATIONS DATA
Available revenue days(5) ......................       3,309        3,181        2,817        2,603        1,953
Revenue days worked(6) .........................       2,152        2,125        1,979        1,820          981
Total pipelay mileage ..........................         248          227          190          194          117
Average revenue per mile of pipe laid ..........   $ 237,600    $ 256,300    $ 262,100    $ 207,800    $ 155,600
Average miles per pipelay job ..................         4.8          3.6          2.9          3.0          3.8
Total vessels in operation (at end of period)(7)          10           10            9            8            6

AVERAGE PRICE (8)
Crude oil (per barrel) .........................   $   30.90    $   26.15    $   25.96    $   30.28    $   19.32
Natural gas (per thousand cubic feet) ..........   $    5.01    $    3.37         3.96         4.31         2.31
</TABLE>

(1)   Gross profit is revenues less cost of sales.

(2)   EBITDA, as adjusted, represents earnings before net interest, income
      taxes, depreciation and amortization. The EBITDA, as adjusted, presented
      above is also adjusted to exclude charges of $0.9 million resulting from
      the write off of certain costs due to the termination of the Midnight
      Hunter charter agreement and $0.2 million resulting from the write off of
      certain financing costs related to the Midnight Express in 2002 and $1.0
      million in 2001 resulting from the write off of certain deferred costs
      related to the Midnight Warrior project. EBITDA, as adjusted, is presented
      here to provide additional information about our operations. EBITDA, as
      adjusted, is not a calculation based on generally accepted accounting
      principles and should not be considered as an alternative to net income,
      as an indicator of our operating performance or as an alternative to cash
      flow as a better measure of liquidity. In addition, our EBITDA
      calculation, as adjusted,  may not be comparable to similarly titled
      measures of other companies. We have disclosed EBITDA, as adjusted,
      because we use this measure as an internal benchmark against certain
      performance objectives and to provide investors and creditors additional
      information in assessing our business in comparison to industry and other
      market competitive standards.

(3)   Includes current portion of long-term debt, the Finance Facility and the
      receivable line of credit totaling approximately $56.3 million as of
      December 31, 2003.

(4)   Represents mandatorily redeemable convertible preferred membership units
      that were exchanged for common stock in 2001 as part of the contribution
      of membership interests in Torch Offshore, L.L.C. to Torch Offshore, Inc.

(5)   Represents total calendar days for each vessel less any days a vessel was
      nonoperational.

(6)   Number of days vessels are offshore performing services, in transit or
      waiting on inclement weather, while under contract.

(7)   Includes the Midnight Hunter as of December 31, 2002; however, the charter
      of the Midnight Hunter was terminated in January 2003. The vessel was
      re-chartered beginning in January 2004.

(8)   Based on the monthly average closing current contract prices posted by the
      NYMEX.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis should be read in conjunction with our
financial statements and related notes included elsewhere in this Annual Report.
The discussion below contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those expressed
or implied in this Form 10-K. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed above

                                      -20-
<PAGE>
under the captions "Forward-Looking Statements" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations - Risk
Factors."

EXECUTIVE SUMMARY

We provide subsea construction services in connection with the in-field
development of offshore oil and natural gas reservoirs. We are a leading service
provider in our market niche of installing and maintaining small diameter
flowlines and related infrastructure on the Shelf. Over the last few years, we
have expanded our operations, fleet capabilities and management expertise to
enable us to provide analogous services in water depths up to 10,000 feet. In
addition, we have begun to enter the international markets of the world,
including Mexico, as we believe these areas present opportunities for
utilization of our fleet.

In 2003, we reported revenues of $65.6 million, a 3.6% decrease compared with
2002 revenues of $68.0 million. The operating loss for 2003 was $13.0 million,
compared with an operating income of $0.4 million in 2002. Included in our
operating loss for 2003 are charges of $3.1 million related to the Midnight
Hunter (including arbitration legal costs), $3.0 million related to receivable
and claims write-offs, and $1.6 million related to the asset impairment of the
Midnight Carrier.

During 2003, based upon management's experience, market conditions in the Gulf
of Mexico remained relatively weak as offshore drilling remained depressed as
capital expenditures by oil and natural gas companies were below normal levels
due to the slowdown in the U.S. economy and the industry-wide concern of the
natural gas pricing trends. Although the U.S. land rig count increased, a
similar development did not transpire in offshore drilling. These forces have
driven market prices to lower levels, and as a result, adversely impacted our
gross margins.

As a result of these market conditions, the recent arbitration ruling in the
Midnight Hunter case, and other events with a direct impact on our earnings as
discussed above, we experienced significant financial losses in 2003. We have a
significant working capital deficit position primarily resulting from the
current classification of the Midnight Express construction finance facility
that matures on October 31, 2004. In addition, for the three most recent fiscal
quarters, we were not in compliance with certain financial ratio covenants under
our debt agreements and had to obtain waivers and certain revisions to these
covenants requirements from our lenders to prevent an event of default. These
conditions place a high degree of pressure on our liquidity management and could
ultimately impact our operations and future business plans. Management believes,
however, that we have the ability to sustain our operations and meet our
financial commitments, at least for the near-term, through effective management
of our operations and the available liquidity provided through our credit
facilities. However, if we continue to incur significant cash losses or if our
ability to access our credit facilities is curtailed, our ability to continue to
manage our liquidity needs and meet our operating and other financial
commitments may be jeopardized in the future.

We believe that certain factors are critical to our success, including having
sufficient financial liquidity to fund the completion of the conversion of the
Midnight Express in 2004; ascertaining utilization for the Midnight Express as
soon as possible upon completion of its sea trials, which is expected in the
second half of 2004; raising additional funds through the public or private
placement of equity; reducing certain fixed costs and possibly generating
additional funds through the sale of certain vessels; managing the utilization
of our existing fleet of vessels by strategically positioning our DP-2 vessels
on jobs to promote efficiency and greater margins; continuing to expand our
market from the shallow water into the intermediate water depths and the
deepwater with the use of our DP-2 vessels; and developing an international
presence.

In order to accomplish our business plan and meet our financial obligations, we
must:

-     Complete the conversion of the Midnight Express in a timely manner and
      within the financial constraints of the $19.0 million increase to our
      credit facility.

                                      -21-
<PAGE>
-     Raise additional capital to fund working capital requirements, including
      the payment of monthly lease amounts for the Midnight Hunter and Midnight
      Arrow, which are approximately $8.5 million for the year ended December
      31, 2004, and to make monthly and quarterly interest and principal
      payments to General Electric Commercial Equipment Financing (GE
      Commercial) as part of the Midnight Eagle term loan and General Electric
      Capital Corporation (GE Capital) as part of the Midnight Wrangler term
      loan (together $4.4 million for the year ended December 31, 2004 of which
      as of April 12, 2004 we have met $1.3 million).

-     Dispose of certain non-essential vessels to reduce debt and associated
      fixed costs.

-     Enter into an agreement(s) for utilization of the Midnight Express near
      the time of the completion of its final sea trials in the second half of
      2004.

We have been actively pursuing transactions to address the above matters as well
as others described in Note 14 to the Company's financial statements, the
ultimate resolution of which is beyond our control and will have a significant
impact on our financial condition and liquidity. As a result, no assurances can
be given that these transactions will be completed as contemplated or at all,
which could have a detrimental effect on our ability to continue our operations.
For more information regarding our business plan and these transactions, see
"Item 1. Business - General, Requirements of Additional Capital and Business
Plan" and Note 14 to the Financial Statements located in Item 8 of this Form
10-K, and for the related risks, see "Risk Factors" below.

As 2004 begins, we remain focused on our strategy of moving into the deepwater
markets of the world through the establishment of our fleet of DP-2 vessels.
Since 1997, we have increased the size of our total fleet from three to twelve
construction and service vessels. In 2002, we acquired a 520-foot vessel from
Smit International, renamed the Midnight Express, which is being converted to a
DP-2 offshore construction vessel with our patented pipelay system at an
estimated cost of approximately $109.0 million. In December 2002, we committed
to purchase a cable-lay vessel, renamed the Midnight Wrangler, for the purpose
of deepwater pipelay and subsea construction. We took possession of this vessel
in March 2003 and the vessel entered our active fleet in August 2003 after
various modifications and upgrades were made to it. In January 2004, we entered
into a new charter for the Midnight Hunter, a deepwater capable diving support
vessel. These critical additions to our fleet over the past few years have
positioned us to grow our business and while achieving better margins as we move
into the intermediate depths and the deepwater. These DP-2 vessels are the core
of our fleet and the key to the future successes of the Company.

OVERVIEW OF CRITICAL EVENTS IN 2003

In November 2002, we signed a contract to provide pipeline installation support
in the Boston, Massachusetts Harbor. The contract commenced in the fourth
quarter of 2002 and was extended into the second quarter of 2003. The contract
called for the Midnight Rider to work outside of Gulf of Mexico waters for the
duration of the contract. The contract provided for the mobilization and
demobilization of the Midnight Rider in addition to the pipelay and burial work
to be completed. The contract was completed in June 2003; however, collection
for a large portion of the work was delayed until March 2004 ($6.2 million).
This delay in collection had an impact on our financial liquidity for several
months.

During the year ended December 31, 2003, we incurred approximately $0.5 million
of costs to establish and commence bidding operations in Mexico through our
wholly-owned subsidiary, Torch Offshore de Mexico S. de R.L. de C.V. The costs
incurred during the year primarily relate to personnel costs associated with the
submission of a pipelay bid to Petroleos Mexicanos (PEMEX). We were unsuccessful
in attaining this project; we subsequently closed our Mexican office and sold
our ownership interests in Torch Offshore de Mexico S. de R.L. de C.V. to our
Mexican partner. We expect additional bid requests to be released by PEMEX in
the near future. We will bid on those projects for which we believe our fleet,
personnel and financial capabilities are best suited, but we intend to bid as a
subcontractor rather than directly to PEMEX.

In October 2003, the shipyard converting the Midnight Express, Davie Maritime,
Inc., indicated to us that they would

                                      -22-
<PAGE>
claim additional funds under the contract and would deliver the vessel later
than originally stipulated (December 26, 2003). We have come to a settlement
with Davie Maritime, Inc. in the amount of $8.3 million. This settlement covers
all of the claims made by Davie Maritime, Inc. against us and extended the
delivery date of the vessel to May 21, 2004. The settlement is to be paid from
March 2004 through delivery from the additional $19.0 million from Regions Bank
and EDC (see discussion below). Since the initial contract signing, the shipyard
contract has grown from $37.1 million to $51.9 million of which $6.5 million has
been approved change orders and $8.3 million has come from an increase in price.
If further delays transpire beyond the rescheduled delivery date, it could delay
the entrance of the Midnight Express into our active fleet which could result in
a material adverse effect on our 2004 results of operations and our ability to
service our debt based upon the anticipated debt repayment schedule.

The conversion of the Midnight Express is entering its final stages. We expect
that in the second quarter of 2004 the vessel will leave the drydock to be
moored alongside at Davie Maritime, Inc. as commissioning and testing activities
continue. Once dockside trials are completed, Davie Maritime, Inc. will bring
the vessel out of the St. Lawrence Seaway to the North Atlantic Ocean off of
Halifax to complete extensive sea trials and DP-2 system tests. Upon acceptance
of the vessel after sea trials, the Midnight Express will cross the North
Atlantic Ocean to receive our patented lay system and crane. A portion of the
installation work is to be completed in the port of the manufacturer before the
Midnight Express is dispatched to the Gulf of Mexico for final outfit.

With the fabrication of the crane complete, the specialized lay gear undergoing
software testing and the Midnight Express entering the commissioning phases, our
goal of introducing the industry to a new generation of construction equipment
is very near. The patented lay system effectively combines the features of reel
lay with a capability to spool pipelines to the product reels onboard the
Midnight Express. We are aggressively marketing the vessel with our clients and
the capabilities have generated considerable interest. However, the interest of
other contractors has also been encouraging and we will continue to develop
relationships with clients and contractors to drive the utilization of the
vessel. The successful completion, deployment and steady utilization of the
Midnight Express is critical to our future liquidity needs.

BUSINESS ENVIRONMENT

The demand for subsea construction services has historically depended upon the
prices of oil and natural gas. These prices reflect the general condition of the
industry and influence the willingness of our customers to spend capital to
develop oil and natural gas reservoirs. We are unable to predict future oil and
natural gas prices or the level of offshore construction activity related to the
industry. In addition to the prices of oil and natural gas, we use the following
leading indicators, among others, to forecast the demand for our services:

-     the offshore mobile and jack-up rig counts;

-     forecasts of capital expenditures by major, independent, and state oil and
      natural gas companies; and

-     recent lease sale activity levels.

Even when demand for subsea construction services is strong, several factors may
affect our profitability, including the following:

-     competition;

-     availability of qualified personnel;

-     equipment and labor productivity;

-     cost of third party services such as catering and labor services;

-     fuel cost;

                                      -23-
<PAGE>
-     weather conditions;

-     contract estimating uncertainties;

-     global economic and political circumstances; and

-     other risks inherent in marine construction.

Although greatly influenced by overall market conditions, our fleet-wide
utilization is generally lower during the first half of the year because of
winter weather conditions in the Gulf of Mexico. Accordingly, we endeavor to
schedule our drydock inspections and routine and preventative maintenance during
this period. Additionally, during the first quarter, a substantial number of our
customers finalize capital budgets and solicit bids for construction projects.
For this reason, individual quarterly/interim results are not necessarily
indicative of the expected results for any given year.

In the life of an offshore field, capital is allocated for field development
following a commercial discovery. The time that elapses between a successfully
drilled well and the development phase, in which we participate, varies
depending on the water depth of the field. On the Shelf, demand for our services
generally follows drilling activities by three to twelve months. We have noticed
that demand for pipeline installation for projects exceeding 1,000 feet of water
depth generally follows drilling activities by at least eighteen months to three
years as deepwater installations typically require much more engineering design
work than Shelf installations.

INDUSTRY OUTLOOK

Our industry experienced an unusual year in the Gulf of Mexico construction
market in 2003 as high oil and natural gas commodity prices did little to
accelerate the spending for oilfield services. Producers continued to produce
cash flows, but simply did not inject capital spending as they normally would
with such robust commodity pricing. The U.S. rig count increased in 2003, but a
large piece of this increase was related to inland exploration and production.
Drilling in the Gulf of Mexico has not yet reacted to the higher commodity price
structure. Many reasons have been offered for this unusual response from the
market, including a lack of good prospects and disbelief that the higher
commodity prices would be maintained due to the political instability in oil
producing regions.

We believe the first quarter of 2004 will be a period of minimal activity with a
possibility for a minor increase in activity beginning in the second quarter of
the year. Early 2004 indicators show a gentle increase in the 2004 budgets of
drilling companies, although we do not anticipate a dramatic or rapid increase.
As for the pricing structure being experienced in our sector of the industry, it
appears as if the 2004 market will continue to be very price competitive. In
order for the pricing structure to improve, it appears as if an increase in
offshore drilling rigs is required and this is not expected in 2004. We believe
that our future financial and operating results will continue to be highly
dependent on overall market conditions in the oil and natural gas industry.

We believe that the Shelf will benefit from recently passed royalty relief
regulations, which provide certain benefits to companies performing deep
drilling on the Shelf. The newly passed regulations apply to existing leases as
well as newly acquired leases for natural gas production from wells drilled to
deep vertical depth on the Shelf, or 15,000 feet total vertical depth. We
anticipate that this benefit may entice certain independent oil and natural gas
operators to increase their drilling for natural gas on the Shelf. In addition,
we anticipate that the Gulf of Mexico offshore construction industry will
benefit from improved long-term industry fundamentals. We believe that a
combination of factors, such as the expected increase in worldwide energy
demand, decreased levels of natural gas storage, increasing deepwater forecasts
for capital expenditures in 2004, and our strong market presence, positions us
well for the future. The extensive transportation infrastructure present on the
Shelf facilitates the development of incremental fields that can be tied into
existing trunklines originally constructed to service fields that are now in the
process of decline, which favors our Shelf market niche strategy. The additions
to our active fleet of the Midnight Wrangler in

                                      -24-
<PAGE>
2003 and the Midnight Hunter and Midnight Express in 2004 also position us to
take on the challenges and opportunities of the deepwater market in the near
future.

Natural gas consumption in the United States and on a worldwide basis is
expected to continue to increase over the next decade leading to a further
depletion of levels of natural gas storage. A large portion of this continued
expansion is expected to come from the growth in electric power requirements and
overall population growth, particularly in China and Asia Pacific. Environmental
and economic considerations dictate that a large percentage of this increased
electric power will come from newly constructed gas-fired power generation
facilities. Oil consumption should also remain relatively stable in the
near-term. Management believes that significant new capital must be continually
invested in field exploration and development in order to maintain, much less
grow, existing oil and natural gas energy production levels to meet these
growing demands.

These increased demands for natural gas and the dominant role of independent oil
and natural gas operators on the Shelf should allow the Gulf of Mexico to
maintain and even increase its position as a major source of North American
natural gas supplies for the intermediate term. In addition, many of these
independent oil and natural gas operators are entering the intermediate water
depths and in some cases the deepwater. Due to the technological advances, these
operators have enjoyed an improvement in exploration success rates. Management
believes that the higher demand, improved technologies, and strong oil and
natural gas prices will permit the exploration for and the development of
additional marginal prospects, eventually resulting in increased activity on the
Shelf and in intermediate water depths where we already have a strong market
position.

Major oil and natural gas companies and large independent oil and natural gas
operators are increasingly focusing their exploration and development efforts on
frontier areas, particularly the deepwater regions of the Gulf of Mexico and the
coasts of South America and West Africa. These regions offer greater oil and
natural gas reserve and production growth potential relative to the existing
Shelf regions. Focusing on the Gulf of Mexico, deepwater production has been
much more prolific and oil prone (as opposed to natural gas prone) than on the
Shelf. These worldwide deepwater basins are one of the few non-OPEC areas to
have major reserve potential, with numerous individual discoveries expected to
produce more than one billion barrels each. There have already been several
deepwater fields identified for development and various other projects are under
contemplation. The completion of these deepwater projects will require
multi-billion dollar expenditures and will result in additional wells; subsea
trees, templates and manifolds; subsea control lines; flowlines; risers; and
fixed and floating platforms. Management continues to believe that there is a
large amount of potential utilization for our fleet on deepwater projects,
especially for the Midnight Express given its capabilities because of the
patented pipelay system.

RISK FACTORS

WE FACE SIGNIFICANT FINANCIAL LIQUIDITY ISSUES THAT COULD HAVE A DETRIMENTAL
EFFECT ON OUR ABILITY TO CONTINUE TO CONDUCT OPERATIONS.

We face significant financial liquidity issues and may not be able to obtain
additional financing, which raises substantial doubt about our ability to
continue as a going concern. As a result, our independent auditors concluded, as
required by generally accepted auditing standards, that their auditors' report
on our 2003 financial statements should include an explanatory paragraph
regarding our ability to continue as a going concern. We have historically
funded our operations and capital expenditures primarily through cash on hand,
borrowings from financial institutions and cash flow from operations. However,
as a result of adverse business conditions in the industry and significant costs
of expanding our fleet of DP-2 vessels, we face significant financial liquidity
issues in 2004. We have debt and other obligations that are due in 2004 and we
will require additional capital to meet those obligations in the event our
operational performance does not meet expectations. In addition, we may need
additional capital to complete the conversion of the Midnight Express if there
are any more cost overruns. Although our relationships with our creditors remain
positive and we have taken steps to obtain additional capital and amend certain
covenants, there is no assurance that our creditors will not take actions that
could be detrimental to our ability to continue to conduct our operations in the
future.

                                      -25-
<PAGE>
OUR INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL POSITION AND LIQUIDITY.

As of December 31, 2003, we had total debt of $76.3 million. This debt level
will continue to increase as we draw the remaining $14.4 million under our
existing $60.0 million credit facility (the "Finance Facility") for the
conversion of the Midnight Express. In April 2004, we amended the level of this
construction finance facility to include an additional $19.0 million for the
conversion of the vessel. This will also further increase our indebtedness. This
high level of debt could have certain consequences including the following:

      -     the inability of our current operations to generate cash to support
            future principal and interest payments;

      -     inadequate levels of cash for general corporate purposes as a
            significant amount of cash flow will be utilized in paying regular
            interest and principal payments;

      -     limiting our flexibility to react to changes in economic and/or
            industry conditions; and

      -     limiting our ability to borrow additional funds, retain 100% of
            funds from an equity offering, or retain cash proceeds from the sale
            of certain assets.

Our ability to continue to service our debt requirements will depend upon our
ability to generate cash from operations in the future. The ability to generate
cash from operations is driven by the demand for construction services by the
oil and natural gas industry, including the demand for the utilization of the
Midnight Express. This level of demand as well as various other factors
affecting this demand are beyond our control.

WE HAVE INCURRED LOSSES IN RECENT PERIODS AND MAY INCUR ADDITIONAL LOSSES IN THE
FUTURE.

We have, from time to time, incurred losses from operations, particularly during
periods of low industry-wide demand for marine construction services. Although
we were profitable in 2002 ($0.4 million net income), we incurred net losses of
$9.2 million in 2003 and $0.7 million in 2001; and we anticipate incurring a
loss in the first quarter of 2004. We may not be profitable in the future. If we
do achieve profitability in any period, we may not be able to sustain or
increase such profitability on a quarterly or annual basis.

MANAGEMENT BELIEVES WE WILL NEED ADDITIONAL FINANCING TO MEET OUR FINANCIAL
NEEDS IN THE FUTURE.

Our current plan is to obtain additional financing after reviewing all possible
options in detail, including, but not limited to, the issuance of equity or debt
securities or alliances and/or joint ventures with other marine contractors.
Funds raised from the issuance of additional equity securities may have a
negative affect on our stockholders, such as a dilution of the percentage of
ownership, and the rights, preferences or privileges of the new security holders
may be senior to those of the common stockholders. Our ability to meet our debt
service requirements and to obtain advances under our bank facility with Regions
Bank will depend significantly upon our ability to generate business through our
operations in 2004 and beyond. There is no assurance that we will be able to
obtain any financing on favorable terms, or at all. Failure to obtain additional
financing would have a material adverse effect on our business, results of
operations and financial condition in the future.

FURTHER DELAYS OR COST OVERRUNS IN THE CONVERSION OF THE MIDNIGHT EXPRESS COULD
ADVERSELY AFFECT OUR FINANCIAL CONDITION, AND EXPECTED CASH FLOWS FROM THE
MIDNIGHT EXPRESS UPON COMPLETION MAY NOT BE AS IMMEDIATE OR AS HIGH AS EXPECTED.

The conversion of the Midnight Express is now estimated to cost approximately
$109.0 million, which is approximately $19.0 million more than the original
estimate. The vessel will also be delivered later than originally stipulated in
the contract with Davie Maritime, Inc. (originally December 26, 2003 and now May
21, 2004). The construction, refurbishment and conversion of marine equipment is
subject to the risks of further delays or cost overruns for various reasons,
including:

      -     unforeseen quality or engineering problems;


                                      -26-
<PAGE>
      -     work stoppages;

      -     weather interference;

      -     unanticipated cost increases;

      -     delays in receipt of necessary equipment; and

      -     inability to obtain the requisite permits or approvals.

The Midnight Express is now currently scheduled to be placed into service in the
second half of 2004, following sea trials. However, this in-service date cannot
be guaranteed due to the above listed risks inherent with the conversion of a
vessel. Further significant delays in the completion of the conversion of the
Midnight Express could have a material adverse effect on demand for this vessel
and our future revenues and cash flows. We are financing the conversion of this
vessel through a credit line provided by Regions Bank and EDC, which has been
amended to cover the above mentioned cost overruns. If we incur further
significant cost overruns related to the conversion of the Midnight Express, we
will have to obtain additional financing or use our available capital resources
to complete the construction of this vessel. There can be no assurance that we
will have adequate capital resources or will be able to obtain additional
financing to complete the conversion of the Midnight Express if we incur further
cost overruns.

WE DO NOT HAVE A CONTRACT YET FOR THE DEPLOYMENT OF THE MIDNIGHT EXPRESS AND IF
WE DO NOT OBTAIN A CONTRACT, THIS VESSEL WILL NOT GENERATE REVENUES FOLLOWING
COMPLETION OF CONSTRUCTION.

Upon completion of the conversion of the Midnight Express, amounts outstanding
under the credit line used to finance the conversion will be converted into
fixed-term loans. We have not as yet been awarded a contract for this vessel.
Our ability to obtain a contract for the Midnight Express and the terms of the
contract will be dependent upon market conditions at the time this vessel is
available for contract. We may not be able to obtain a contract for the Midnight
Express and future contract terms may not be similar to those for comparable
vessels until the Midnight Express has successfully performed in an operating
capacity. If we are not able to obtain a contract for the Midnight Express, or
if the terms are not similar to those for comparable vessels, we may not be able
to meet our obligations under the term loans for the conversion of the Midnight
Express, our financial condition and results of operations may be adversely
affected and we may have to raise additional capital or refinance the term loans
and our other indebtedness.

WE HAVE COVENANTS WITHIN OUR DEBT INSTRUMENTS THAT MAY LIMIT OUR OPERATING AND
FINANCIAL OPPORTUNITIES.

Under the terms of our bank facility with Regions Bank, the financing facility
for the conversion of the Midnight Express, and our term loan with GE
Commercial, as of December 31, 2003 we must maintain a tangible net worth of at
least $60.0 million, a minimum debt service coverage ratio of at least 1.20 to
1, a consolidated leverage ratio of no more than 2.00 to 1 and a consolidated
current ratio of at least 1.00 to 1 (1.10 to 1 as of March 31, 2004 and 1.30 to
1 beginning as of June 30, 2004). In addition, we are not allowed to incur
further debt in excess of $8.0 million without consent from Regions Bank. Under
our term loan with GE Capital, beginning March 31, 2005, we must maintain a
minimum EBITDA of $18.5 million, a minimum fixed charge ratio of 1.05 to 1, and
a maximum leverage ratio of 5.25 to 1 for the financial quarters ended in the
period from October 1, 2004 through September 30, 2005. The maximum leverage
ratios decline by 0.50 to 1 for each of the following four years on an annual
basis before reaching 3.25 to 1 which applies for the financial quarters ended
from October 1, 2008 and thereafter.

As of December 31, 2003, we were not in compliance with the consolidated current
ratio covenant and debt service coverage ratio of the bank facility with Regions
Bank, the financing facility for the conversion of the Midnight Express, or the
GE Commercial term loan facility. We received waivers from all three lenders
subsequent to December 31, 2003 for the non-compliance and amended the
consolidated current ratio covenant in these facilities to 0.70 to 1 for the
four quarters in 2004. For the quarter ended March 31, 2005 the consolidated
current ratio returns to 1.00 to 1. However, the debt service coverage ratio
will remain 1.20 to 1 going forward.


                                      -27-
<PAGE>
Furthermore, the terms of our bank facility, financing facility, GE Commercial
term loan and GE Capital term loan may limit our ability to obtain future
financing, continue our expansion into the deepwater market and otherwise
conduct necessary corporate activities.

Our ability to meet the financial ratios and covenants depicted above can be
affected by events beyond our control and we may therefore not be able to
satisfy these requirements. If we fail to do so and we are unable to obtain a
waiver, our lenders will have various rights, including the ability to
accelerate the debt so that it is payable immediately and to exercise their
rights under the security provided to them by us. Any such acceleration would
have a material adverse effect on our financial condition.

OUR WORKING CAPITAL DEFICIT MAY ADVERSELY AFFECT OUR ABILITY TO FURTHER
IMPLEMENT OUR GROWTH STRATEGY AND EXPAND OUR PRESENCE IN THE DEEPWATER MARKET.

As of December 31, 2003 we had a working capital deficit of approximately $55.0
million. We believe that our cash flow from operations and our bank facility
with Regions Bank will not be sufficient to meet our existing liquidity needs
for our operations through December 2004, at which time the cash flows from the
Midnight Express will be necessary to satisfy the debt service requirements of
the two term loans utilized for the conversion of the Midnight Express. Raising
additional capital during 2004 is a requirement for us to continue to conduct
our operations and meet our debt obligations. We may not be able to raise
additional capital on favorable terms, or at all. If we do not have sufficient
capital resources, or are unable to raise additional capital, our business and
the implementation of our growth strategy may be adversely affected.

A SUBSTANTIAL OR EXTENDED DECLINE IN EXPENDITURES BY THE OIL OR NATURAL GAS
INDUSTRY, WHICH MAY OCCUR DUE TO A DECLINE OR VOLATILITY IN OIL AND NATURAL GAS
PRICES OR LACK OF OFFSHORE DISCOVERY OPPORTUNITIES, WOULD REDUCE OUR REVENUES.

Demand for our services is greatly influenced by the level of activity in the
offshore oil and natural gas exploration, development and production markets
worldwide. The level of activity of our customers, which include major oil and
natural gas companies and independent oil and natural gas operators, are
primarily influenced by prices and demand for oil and natural gas, and market
expectations of potential changes in demand and prices. Prices for oil and
natural gas historically have been extremely volatile and have reacted to
changes in the supply of and demand for oil and natural gas, domestic and
worldwide economic conditions and political instability in oil producing
countries. Additional factors may affect oil and natural gas prices and,
accordingly, the level of demand for our services, including:

      -     the ability of the Organization of Petroleum Exporting Countries, or
            OPEC, to set and maintain production levels and pricing;

      -     the level of production by non-OPEC countries;

      -     laws and governmental regulations that restrict exploration and
            development of oil and natural gas in various jurisdictions; and

      -     advances in exploration and development technology.

Because of the volatility of oil and natural gas prices, demand for our services
may vary significantly. Furthermore, while oil and natural gas prices strongly
influence drilling activity, demand for our services is also influenced by our
customer's ability to successfully complete commercially viable oil and natural
gas wells. An extended decline in the number of successful new wells in the
markets where we operate could result in lower capital expenditures by the oil
and natural gas industry in these areas, thereby reducing our revenues. We are
unable to predict how successful the drilling programs will be in the markets in
which we operate.

The level of offshore drilling and exploration activity has varied substantially
in recent years, resulting in significant


                                      -28-
<PAGE>
fluctuations in demand for our services. Significant downturns in the oil and
natural gas industry in the past have adversely impacted our financial
performance resulting in operating losses. A significant or prolonged reduction
in oil or natural gas prices in the future would likely further depress offshore
drilling and development activity. If depressed levels of activity continue for
a prolonged period, or if it decreases further, demand for our services may be
reduced, which would have a material adverse effect on our financial condition
and results of operations.

OUR PLANS TO EXPAND OUR SERVICES INTO THE DEEPWATER MAY NOT BE SUCCESSFUL.

An important part of our growth strategy is our ability to expand our current
services into water depths up to 10,000 feet. We are, and will continue,
devoting and investing significant resources to this strategy, which includes
the successful completion of the conversion of the Midnight Express.
Specifically, we recently expanded our deepwater capabilities by upgrading an
existing vessel (the Midnight Eagle), purchasing and converting a deepwater
pipelay and subsea construction vessel (the Midnight Wrangler), and entering a
charter for a deepwater-capable diving support vessel (the Midnight Hunter). We
have also purchased and are converting a vessel to be a specially designed and
equipped deepwater offshore construction vessel (the Midnight Express).
Additionally, we formed an employee team of deepwater specialists in our
Houston, Texas office. Nevertheless, we may not be successful in obtaining or
executing contracts to provide deepwater services. Furthermore, our plans to
expand our services into the deepwater market will be dependent upon our ability
to obtain the necessary capital to further implement our strategy. If we are
unable to obtain the necessary capital, the expansion of our services into the
deepwater market may be discontinued or significantly delayed or reduced in
scope.

WE MAY HAVE DIFFICULTY UPGRADING OUR EXISTING VESSELS AND ACQUIRING OR
CONSTRUCTING NEW VESSELS ON ACCEPTABLE TERMS, WHICH COULD ADVERSELY AFFECT OUR
STRATEGY TO GROW AND EXPAND OUR DEEPWATER SERVICES.

Upgrading our existing vessels and acquiring or constructing new vessels are key
elements of our growth strategy. We may pursue the acquisition of other vessels
for modification or the acquisition of other companies with operations related
to, or complementary with, our current operations and our growth strategy; we
may not be able to achieve these goals on financial or other terms acceptable to
us. Additionally, we may not be able to obtain financing for the acquisitions,
upgrades or vessel conversions on acceptable terms. A significant or prolonged
reduction in oil or natural gas prices in the future would depress offshore
drilling and development activity and adversely affect our ability to obtain
financing for acquisitions, upgrades or vessel conversions. Any inability on our
part to purchase additional marine equipment or other complementary acquisitions
as well as to perform upgrades or vessel conversions on acceptable financial or
other terms could have a material adverse effect on our strategy to grow and
expand our deepwater services.

THE SEASONAL NATURE OF THE OFFSHORE CONSTRUCTION INDUSTRY MAY CAUSE OUR
QUARTERLY RESULTS TO FLUCTUATE.

The offshore construction industry in the Gulf of Mexico is seasonal as a result
of weather conditions. Typically, the greatest demand for offshore construction
services is during the period from May through September. Because of the
seasonal nature of the business, our quarterly results may fluctuate. The timing
of capital expenditures by our customers may also cause our results to
fluctuate. In addition, the results of any particular quarter are not
necessarily indicative of annual results, future quarters or continuing trends.

OUR ORIGINAL ESTIMATES OF COSTS ASSOCIATED WITH OUR FIXED-PRICE CONTRACTS MAY BE
INCORRECT AND RESULT IN LOSSES ON PROJECTS AND, THEREFORE, ADVERSELY EFFECT OUR
OPERATING RESULTS.

Because of the nature of the offshore construction industry, the majority of our
projects are performed on a fixed-price basis. Changes in offshore job
conditions and variations in labor and equipment productivity may adversely
affect the costs and gross profit realized on a fixed-price contract and may
cause variations from the original estimates of those items. Since we expect
that our deepwater contracts may extend over several quarters, variations from
the original estimates of these items on our deepwater contracts may result in a
reduction or elimination of previously reported profits in future reporting
periods. In addition, we typically bear the risk of delays caused by adverse
weather conditions, excluding hurricanes and named tropical storms. The risks
inherent in the offshore construction industry may result in the profits we
realize on projects differing from those originally estimated and may result in
reduced profitability or losses on our projects.


                                      -29-
<PAGE>
WE DEPEND ON SEVERAL SIGNIFICANT CUSTOMERS, AND A LOSS OF ONE OR MORE
SIGNIFICANT CUSTOMERS COULD ADVERSELY AFFECT OUR OPERATING RESULTS.

Our customers consist primarily of major oil and natural gas companies and
independent oil and natural gas operators. In recent years, single customers
have accounted for 10% or more of our revenues. In 2003, our two largest
customers accounted for 19.1% and 10.7%, respectively, of our revenues. The loss
of any one of our largest customers or a sustained decrease in demand by our
customers could result in a substantial loss of revenues and could have a
material adverse effect on our operating performance.

THE LOSS OF ANY MEMBER OF OUR SENIOR MANAGEMENT COULD ADVERSELY AFFECT OUR
RESULTS OF OPERATIONS.

Our success depends heavily on the continued services of our senior management.
Our senior management consists of a small number of individuals relative to
other comparable or larger companies. These individuals are Lyle G. Stockstill,
our Chief Executive Officer; Lana J. Hingle Stockstill, our Chief Administrative
Officer; Robert E. Fulton, our Chief Financial Officer; Willie Bergeron, our
Chief Operating Officer; Thomas P. Budde, our Senior Vice President -
Administration; and Patrice Chemin, our Vice President - International Business
Development. If we lost or suffered an extended interruption in the services of
one or more of our senior officers, our results of operations could be adversely
affected. Moreover, we may not be able to attract and retain qualified personnel
to succeed members of our senior management.

WE MAY BE UNABLE TO COMPETE SUCCESSFULLY WITH OTHER COMPANIES IN OUR INDUSTRY.

The industry in which we operate is highly competitive. Several of our
competitors are substantially larger than we are and have greater financial and
other resources. Price is the primary factor in determining which contractor is
awarded the contract, although customers also consider the availability and
capabilities of equipment and the reputation and experience of the contractor.
Competitors with greater financial resources may be willing to sustain losses on
projects to prevent further market entry by competitors, to cover the fixed
costs of their fleets or to avoid the expense of temporarily idling vessels.
Marine construction vessels have few alternative uses and relatively high fixed
costs, whether or not they are in operation. As we increase the portion of our
operations conducted in deepwater, we will encounter additional competitors,
many of which have more vessels and greater experience in deepwater operations.
As larger companies relocate vessels to the Gulf of Mexico, levels of
competition may increase and our ability to obtain deepwater projects in the
Gulf of Mexico could be adversely affected. This could also transpire in
international waters as well when we attempt to expand our global presence.

OFFSHORE CONSTRUCTION IS SUBJECT TO VARIOUS OPERATING RISKS, AND WE MAY LACK
ADEQUATE INSURANCE TO COVER THESE OPERATING RISKS.

Offshore construction involves a high degree of operational risk. Hazards, such
as vessels capsizing, sinking, grounding, colliding and sustaining damage from
severe weather conditions, are inherent in marine operations. In addition,
vessels engaged in pipeline operations can disrupt existing pipelines. These
hazards can cause personal injury or loss of life, severe damage to and
destruction of property and equipment, pollution or environmental damage and the
suspension of production operations. The failure of offshore pipelines and
structural components during and after installation can also result in similar
injuries and damages. Our insurance may not be sufficient or effective to
protect us from these operating risks. A successful claim for damages resulting
from a hazard for which we are not fully insured could have a material adverse
effect upon us. Moreover, we may not be able to maintain adequate insurance in
the future at rates that we consider reasonable.

REGULATORY AND ENVIRONMENTAL COMPLIANCE COSTS AND LIABILITIES COULD ADVERSELY
AFFECT OUR BUSINESS.

Our operations are subject to and affected by various types of governmental
regulation, including numerous federal, state and local environmental protection
laws and regulations. Compliance with these laws and regulations may be
difficult and expensive. In addition, significant fines and penalties may be
imposed in the event of any noncompliance. Some environmental laws impose strict
liability for remediation of spills and releases of oil and hazardous
substances, rendering a party liable for environmental damages without regard to
its negligence or fault. Sanctions for noncompliance with these laws and
regulations may include revocation of permits, corrective action orders,
administrative or civil penalties and criminal prosecutions. These laws and
regulations may expose us to liability for the conduct of or conditions caused
by others, including our subcontractors, or for our acts that were in


                                      -30-
<PAGE>
compliance with all applicable laws at the time these acts were performed. The
adoption of laws or regulations curtailing exploration and development drilling
for oil and natural gas for economic, environmental or other policy reasons
could adversely affect our operations by limiting demand for our services. In
addition, new legislation or regulations or changes in existing regulations may
adversely affect our future operations and earnings.

IF WE ARE UNABLE TO ATTRACT AND RETAIN SKILLED WORKERS OUR BUSINESS WILL BE
ADVERSELY AFFECTED.

Our ability to remain productive and profitable depends substantially upon our
ability to continue to retain and attract project managers, project engineers
and skilled construction workers such as divers, welders, pipefitters, DP-2
operators and other equipment operators. Our ability to expand our operations is
impacted by our ability to increase our labor force. The demand for skilled
workers is currently high and the supply is limited. A significant increase in
the wages paid or benefits offered by competing employers could result in a
reduction in our skilled labor force, increases in our employee costs, or both.
If either of these events occur, our capacity and profitability could be
diminished and our growth potential could be impaired. Furthermore, as a result
of the terrorist attacks on September 11, 2001, it has become increasingly
difficult to obtain and retain visas for foreign employees. Any additional
controls could increase our costs and may affect our ability to hire foreign
employees. We have had employees called to service in the Iraqi war. Troop
deployment has also diminished the availability of marine personnel.

A TERRORIST ATTACK OR THE CONTINUING CONFLICT IN IRAQ COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS.

The September 11, 2001 terrorist attacks in the United States were unprecedented
events that created many economic and political uncertainties. The long-term
effects of those attacks on our business are unknown. The potential for future
terrorist attacks, the national and international response to terrorist attacks,
and other acts of war or hostility have created many additional economic and
political uncertainties, which could adversely affect our business for the short
or long-term in ways that cannot presently be predicted. Furthermore, the
possibility for further political instability in the Middle East may delay our
entry into international markets.

THE OWNERSHIP OF OUR COMMON STOCK BY OUR PRINCIPAL STOCKHOLDERS WILL LIMIT THE
INFLUENCE OF PUBLIC STOCKHOLDERS.

Mr. and Mrs. Stockstill and their family trusts beneficially owned at December
31, 2003 approximately 59.4% of our outstanding shares of common stock.
Accordingly, these stockholders have the ability to control the election of our
directors and the outcome of all other matters submitted to a vote of our
stockholders.

ARTHUR ANDERSEN LLP, OUR FORMER AUDITORS, AUDITED CERTAIN FINANCIAL INFORMATION
INCLUDED IN THIS FORM 10-K. IN THE EVENT SUCH FINANCIAL INFORMATION IS LATER
DETERMINED TO CONTAIN FALSE OR MISLEADING STATEMENTS, YOU MAY BE UNABLE TO
RECOVER DAMAGES FROM ARTHUR ANDERSEN LLP.

Arthur Andersen LLP completed its audit of our financial statements for the year
ended December 31, 2001, and issued its report with respect to such financial
statements on January 25, 2002 (except with respect to Note 16, as to which the
date was March 1, 2002). In June 2002, our Board of Directors, at the
recommendation of our Audit Committee, approved the appointment of Ernst & Young
LLP as our independent public accountants to audit our financial statements for
fiscal year 2002. Ernst & Young LLP replaced Arthur Andersen LLP, which had
served as our independent auditors since 1997. Arthur Andersen LLP audited the
financial statements that we include in the Form 10-K as of December 31, 2001
and for each of the years in the two-year period ended December 31, 2001, as set
forth in their report herein.

In June 2002, Arthur Andersen LLP was convicted of obstructing justice, which is
a felony offense. The Securities and Exchange Commission (the "SEC") prohibits
firms convicted of a felony from auditing public companies. Arthur Andersen LLP
is thus unable to consent to the incorporation of its opinion with respect to
this Form 10-K. Under these circumstances, Rule 437a under the Securities Act
permits us to file this Form 10-K, which is incorporated by reference into a
registration statement we have on file with the SEC, without a written consent
from Arthur Andersen LLP. The Securities Act of 1933 (the "Securities Act"),
provides that if part of a registration statement at the time it becomes
effective contains an untrue statement of material fact, or omits a material
fact required to be stated therein or necessary to make the statements therein
not misleading, any person acquiring a security pursuant to such registration
statement (unless it is proved that at the time of such acquisition such person
knew of such untruth or


                                      -31-
<PAGE>
omission) may assert a claim against, among others, an accountant who has
consented to be named as having certified any part of the registration statement
or as having prepared any report for use in connection with the registration
statement. As a result, with respect to transactions in our securities pursuant
to our registration statements that occur after this Form 10-K is filed with the
SEC, Arthur Andersen LLP will not have any liability under the Securities Act
for any untrue statements of a material fact contained in the financial
statements audited by Arthur Andersen LLP or any omissions of a material fact
required to be stated therein. Accordingly, you would be unable to assert a
claim against Arthur Andersen LLP under the Securities Act.

RESULTS OF OPERATIONS

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2003 TO THE YEAR ENDED DECEMBER 31,
2002

The following table highlights revenue days (days of utilization), revenue and
gross profit for the years ended December 31, 2003 and December 31, 2002.

<TABLE>
<CAPTION>
(dollars in thousands, except per revenue day)
                                                        YEAR ENDED DECEMBER 31,
                                                       -------------------------
                                                        2003              2002
                                                       -------           -------
<S>                                                    <C>               <C>
Revenue Days                                             2,152             2,125
Revenue                                                $65,557           $67,990
Gross Profit                                           $ 6,387           $14,649
Average per Revenue Day:
     Revenue                                           $30,463           $31,995
     Gross Profit                                      $ 2,968           $ 6,894
</TABLE>

Revenues. Revenues were $65.6 million for the year ended December 31, 2003
compared to $68.0 million for the year ended December 31, 2002, a decrease of
3.6%. This decrease was a result of the overall decline in the average pricing
realization levels (revenues divided by revenue days) in 2003 as compared to
2002. The number of revenues days worked by the fleet actually increased from
2,125 revenue days in 2002 to 2,152 revenue days in 2003, but the 1.3% increase
in revenue days worked was not sufficient to overcome the decline in the price
structure of the industry. The average price realized in 2003 was $30,463 per
revenue day as compared to $31,995 per revenue day in 2002, a decrease of 4.8%.
Our fleet maintained a utilization rate of 65.0% in 2003 as compared to 66.8% in
2002. The Midnight Wrangler added 82 revenue days during the year. In addition,
the Midnight Eagle and the Midnight Rider had increases in the number of revenue
days in 2003 as compared to 2002 but these increases were partially offset by a
decline in the number of revenue days from the Midnight Star in 2003 as compared
to 2002. The Midnight Eagle worked 269 revenue days in 2003 as compared to 203
revenue days in 2002 and the Midnight Rider worked 355 revenue days in 2003 as
compared to 303 revenue days in 2002. However, the Midnight Star worked only 172
revenue days in 2003 as compared to 258 revenue days in 2002.

Gross Profit. Gross profit (defined as revenues less cost of sales) was $6.4
million (9.7% of revenues) for the year ended December 31, 2003, compared to
$14.6 million (21.5% of revenues) for the year ended December 31, 2002, a
decrease of 56.4%. Cost of sales consists of job related costs such as vessel
wages, insurance and repairs and maintenance. The major contributing factors to
the decrease in the overall gross profit as a percentage of revenue was the
inclusion of $2.1 million of costs related to the termination of the Midnight
Hunter charter and the decline in average pricing realizations as discussed
above. In addition, we incurred increased costs in 2003 as compared with 2002
for catering, fuel costs, subcontract costs, tugboats, diving consumables and
repairs and maintenance. Furthermore, included in cost of sales in 2003 is $0.5
million related to costs to establish and commence bidding operations in Mexico.

Depreciation and Amortization. Depreciation and amortization expense was $9.4
million for the year ended December 31, 2003, compared to $7.5 million for the
year ended December 31, 2002, an increase of 24.2%. The major portion of the
increase relates to the $1.6 million impairment charge for the Midnight Carrier.
In addition,


                                      -32-
<PAGE>
contributing to the increase was the inclusion of depreciation on the Midnight
Wrangler in 2003 as the vessel entered our active fleet in the second half of
the year. These increases in depreciation expense in 2003 were offset by
declines in amortization expense in 2003 as compared to 2002 of the Midnight
Dancer, Midnight Runner and Midnight Carrier.

General and Administrative Expenses. General and administrative expenses were
$6.5 million (10.0% of revenues) for the year ended December 31, 2003 compared
to $4.8 million (7.0% of revenues) for the year ended December 31, 2002, an
increase of 37.1%. The increase in 2003 as compared to 2002 was primarily
attributable to the increase in legal costs ($1.5 million in 2003 versus $0.2
million in 2002), as the costs for the Midnight Hunter arbitration, the Stolt
Offshore, Inc. litigation and the Newfield claim were $1.1 million. In addition,
in 2003 as compared to 2002, there was an increase in wages and consulting fees,
offset by decreases in investor relation costs and taxes and licenses.

Other Operating Expense. Other operating expense was $3.5 million for the year
ended December 31, 2003, compared to $2.0 million of other operating expense for
the year ended December 31, 2002, an increase of 78.9%. The other operating
expense in 2003 relates primarily to the $1.3 million write off of the Newfield
claim receivable and $2.2 million of other provisions relating to our allowance
for doubtful accounts. The other operating expense in 2002 relates primarily to
charges resulting from the write off of certain costs due to the termination of
the Midnight Hunter charter agreement and the write off of certain financing
costs related to the Midnight Express. In addition, the other operating expense
includes a $0.9 million charge relating to an increase in our allowance for
doubtful accounts.

Interest Income, Net. Net interest income was $1,000 for the year ended December
31, 2003, compared to net interest income of $0.2 million for the year ended
December 31, 2002. We capitalized all of our 2003 and 2002 interest costs
totaling $1.7 million and $0.1 million, respectively, in relation to the
construction of the Midnight Express.

Gain on Early Retirement of Debt. We recorded a $0.9 million gain on the early
retirement of debt in December 2003 related to the extinguishment of the
Midnight Wrangler debt with Global Marine Shipping Limited (see Note 7 to the
financial statements).

Income Taxes. For the year ended December 31, 2003, we recorded a $2.9 million
income tax benefit at a 24% effective tax rate. This benefit is net of the
deferred tax asset valuation allowance of $1.3 million we recorded in 2003 to
reduce deferred tax benefits in order to limit the portion of the tax benefits
associated with our operating losses due to the uncertainty of future taxable
income. We recorded a $0.2 million income tax provision at a 35% effective tax
rate for the year ended December 31, 2002.

Net Income (Loss) Attributable to Common Stockholders. Net loss to common
stockholders for the year ended December 31, 2003 was $9.2 million, compared
with a net income of $0.4 million in 2002.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2002 TO THE YEAR ENDED DECEMBER 31,
2001

The following table highlights revenue days (days of utilization), revenue and
gross profit for the years ended December 31, 2002 and December 31, 2001.

<TABLE>
<CAPTION>
(dollars in thousands, except per revenue day)
                                                        YEAR ENDED DECEMBER 31,
                                                       -------------------------
                                                        2002              2001
                                                       -------           -------
<S>                                                    <C>               <C>
Revenue Days                                             2,125             1,979
Revenue                                                $67,990           $59,052
Gross Profit                                           $14,649           $15,862
Average per Revenue Day:
     Revenue                                           $31,995           $29,839
     Gross Profit                                      $ 6,894           $ 8,015
</TABLE>


                                      -33-
<PAGE>
Revenues. Revenues were $68.0 million for the year ended December 31, 2002
compared to $59.1 million for the year ended December 31, 2001, an increase of
15.1%. This increase resulted from an overall increase in the number of revenue
days worked by the fleet, as the capacity of the fleet was expanded during 2002.
The Midnight Rider was in the fleet for all of 2002, contributing 303 revenue
days, versus availability during only a portion of 2001, when it contributed 25
revenue days. The Midnight Hunter was an active part of our fleet and added 107
revenue days during the second half of 2002. The overall fleet-wide improvement
for the number of revenue days worked was 7.4%, as the fleet worked 2,125 days
in 2002 as compared to 1,979 days in 2001. The average vessel utilization of the
fleet decreased slightly during 2002 to 66.8% versus 70.3% in 2001. In addition,
average pricing realization levels (revenues divided by revenue days) for our
services in 2002 were approximately 7.2% higher than 2001 levels per revenue day
worked.

Gross Profit. Gross profit (defined as revenues less cost of sales) was $14.6
million (21.5% of revenues) for the year ended December 31, 2002, compared to
$15.9 million (26.9% of revenues) for the year ended December 31, 2001, a
decrease of 7.6%. Cost of sales consists of job related costs such as vessel
wages, insurance and repairs and maintenance. The decrease in the overall gross
profit as a percentage of revenue was caused by an increase in job related
insurance costs, higher offshore wages and benefits, increased fuel costs, and
higher subcontract costs.

Depreciation and Amortization. Depreciation and amortization expense was $7.5
million for the year ended December 31, 2002, compared to $6.4 million for the
year ended December 31, 2001, an increase of 18.3%. This increase primarily
reflects a full year of depreciation on the Midnight Rider in 2002, versus only
a partial year of depreciation in 2001. In addition, depreciation on the
equipment added to the Midnight Hunter commenced in the third quarter of 2002,
the depreciation on the Midnight Eagle increased due to the addition of
equipment during 2002, and there was an increase in depreciation related to
computer equipment.

General and Administrative Expenses. General and administrative expenses were
$4.8 million (7.0% of revenues) for the year ended December 31, 2002 compared to
$4.0 million (6.7% of revenues) for the year ended December 31, 2001, an
increase of 19.7%. The increase in 2002 as compared to 2001 was a result of
higher consulting fees, investor relation costs and franchise taxes related to
being a public entity for the entire year along with higher insurance premiums
and wages.

Other Operating Expense. Other operating expense was $2.0 million for the year
ended December 31, 2002, compared to $1.0 million of other operating expense for
the year ended December 31, 2001, an increase of 106.9%. The other operating
expense in 2002 relates primarily to charges resulting from the write off of
certain costs due to the termination of the Midnight Hunter charter agreement
and the write off of certain financing costs related to the Midnight Express. In
addition, the other operating expense includes a $0.9 million charge relating to
an increase in our allowance for doubtful accounts. The other operating expense
in 2001 relates to the charge resulting from the write off of certain costs
related to the Midnight Warrior project.

Interest Income (Expense), Net. Net interest income was $0.2 million for the
year ended December 31, 2002, compared to net interest expense of $1.2 million
for the year ended December 31, 2001. We capitalized all of our 2002 interest
costs totaling $0.1 million, in relation to the construction of the Midnight
Express. The interest expense in 2001 was incurred before we retired all
outstanding debt in June 2001 with the proceeds of our initial public offering.
In addition, the interest income on the remaining proceeds of our initial public
offering totaled $0.5 million.

Loss on Early Retirement of Debt. In June 2001, we completed our initial public
offering resulting in the retirement of all outstanding debt balances. In
connection with this extinguishment of debt, we recognized a $0.8 million charge
on the early retirement of debt (see Note 7 to the financial statements).

Income Taxes. For the year ended December 31, 2002, we recorded a $0.2 million
income tax provision at a 35% effective tax rate. In connection with our initial
public offering in June 2001, we became subject to corporate level


                                      -34-
<PAGE>
taxation. As such, we recorded a one-time $2.6 million tax charge based upon the
cumulative book and tax basis differences at that time. Additionally, we
recorded a $0.6 million income tax provision, at a 35% effective rate, on pretax
earnings subsequent to our initial public offering in 2001. If we had been
subject to payment of income taxes for the entire period, we would have recorded
an additional charge of $0.3 million for the year ended December 31, 2001.

Net Income (Loss) Attributable to Common Stockholders. Net income to common
stockholders for the year ended December 31, 2002 was $0.4 million, compared
with a net loss of $0.7 million in 2001, including a $0.2 million charge for
preferred dividends in 2001.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY NEEDS AND OUR FINANCIAL PLAN

We expect to need a significant amount of capital to finance our operations and
meet our debt service obligations. We are taking steps to address our capital
requirements for financial liquidity and have developed a financial plan that we
believe will provide us with sufficient financial resources to continue to
conduct our operations. Please refer to "Item 1. Business - General,
Requirements of Additional Capital and Business Plan," "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Executive Summary" and Note 14 to the Financial Statements located in Item 8 of
this Form 10-K for more details on our plan. However, no assurances can be given
that we will successfully accomplish the objectives of our plan. After
considering our working capital deficiency, debt maturities and other
obligations surrounding the conversion of the Midnight Express, our independent
auditors advised us that they concluded that such matters raise substantial
doubt regarding our ability to continue as a going concern. See "Report of
Independent Public Accountants" included within Item 8 of this Form 10-K.

As part of our financial plan, we have executed an amendment with Regions Bank
and EDC for a $19.0 million increase to our existing credit facility (the
"Finance Facility") to complete the conversion of the Midnight Express. In
addition, these lenders have agreed to extend the time frame of the construction
period of the Finance Facility from June 30, 2004 to October 31, 2004, at which
point the construction period financing will convert to term status. Regions
Bank and EDC have also amended certain covenant obligations that we must meet as
discussed below. We have also executed amendments with GE Commercial and GE
Capital relating to our Midnight Eagle and Midnight Wrangler term loans,
respectively.

We have also come to a settlement with Davie Maritime, Inc., the shipyard that
is completing the conversion of the Midnight Express in Quebec, Canada, through
an increase in the contract price of $8.3 million. Since the initial contract
signing, the contract price has increased from $37.1 million to $51.9 million,
of which $6.5 million has resulted from approved change orders and $8.3 million
from an agreed increase in contract price. This settlement covers all of the
claims made by Davie Maritime, Inc. against us. The settlement is to be paid
from March 1, 2004 through the delivery date from the additional $19.0 million
from the Finance Facility. The agreement also calls for a revised delivery date
of May 21, 2004. Should Davie Maritime, Inc. not deliver the vessel on May 21,
2004, or a later date which could arise due to permissible delays, Davie
Maritime, Inc. will incur liquidated damages following a seven-day grace period
based on the number of days delinquent in delivery of the vessel. After the
Midnight Express leaves the Davie Maritime, Inc. shipyard, we expect that an
additional 90 days of modifications will be required before the vessel is ready
to enter our active fleet. During this time period, our patented pipelay system
and 500-ton crane will be installed onboard the vessel before it enters a period
of sea trials. We expect the vessel to enter the active fleet in the third
quarter of 2004.

We have entered into discussions with various customers to utilize the Midnight
Express in both U.S. and foreign waters under both standard pipeline project
work and on multi-year charter arrangements. There is no guarantee that such
contracts or charters will be awarded to us.


                                      -35-
<PAGE>
Also as part of our business plan, we have settled with Stolt Offshore, Inc.
(Stolt) in the amount of $6.2 million for recovery of work we completed for
Stolt in relation to the Boston Hubline project in the first half of 2003. We
collected these funds in March 2004 and have used them for general operating
purposes and to help meet our debt obligations.

In connection with our efforts to raise funds, we are also considering the sale
of certain of our vessels. We have had preliminary discussions with various
parties, however, there can be no guarantee that we will reach an agreement and
complete a transaction during 2004. We are also seeking other means of raising
funds, including the equity market. Our ability to raise additional capital will
depend upon the status of capital markets and industry conditions. Our Finance
Facility specifies we must raise approximately $10.0 million by June 30, 2005
and requires that the first $10.0 million of proceeds associated with such an
offering be used to reduce amounts outstanding under the Finance Facility.

CURRENT LIQUIDITY AND CAPITAL RESOURCES

In June 2001, we completed an initial public offering (the "Public Offering") of
5.0 million shares of our common stock. Our Public Offering generated gross
proceeds of $80.0 million. Net proceeds from the Public Offering were $72.6
million after underwriting commission and discounts and expenses. We used the
net proceeds from the Public Offering to retire all debt, acquire the Midnight
Rider, and initiate the detailed engineering for the construction of the
Midnight Warrior. We also used the proceeds from the Public Offering to acquire
the Midnight Express and commence the conversion of the vessel in 2002.

The net cash provided by or used in our operating, investing and financing
activities is summarized below:

<TABLE>
<CAPTION>
(in thousands)                                  Twelve Months Ended December 31,
                                              ------------------------------------
                                                2003          2002          2001
                                              --------      --------      --------
<S>                                           <C>           <C>           <C>
Cash flows provided by (used in):
     Operating activities                     $ 10,594      $ (2,279)     $  2,419
     Investing activities                      (72,753)      (24,229)      (13,741)
     Financing activities                       61,873         2,342        34,929
                                              _________     _________    _________
Net decrease in cash and cash equivalents     $   (286)     $(24,166)     $ 23,607
                                              =========     =========    =========
</TABLE>

Our cash flow from operating activities is affected by a number of factors,
including our net results, depreciation and amortization, and changes in our
working capital. In the year ended December 31, 2003, our operating activities
provided net cash of $10.6 million as compared to a usage of cash of $2.3
million in the year ended December 31, 2002 and $2.4 million of cash provided in
the year ended December 31, 2001.

Cash flow used in investing activities in the year ended December 31, 2003 was
related to the purchase of equipment, primarily related to our entrance into the
deepwater market. Cash expenditures totaled $72.8 million for the year ended
December 31, 2003 compared to $24.2 million for the year ended December 31,
2002, an increase of 200.3%. The cash expenditures in 2003 do not include the
$9.7 million expended for the purchase of the Midnight Wrangler, as this amount
was fully financed (see discussion below). The $13.7 million of cash flows in
2001 is related to equipment purchases as well.

Cash flow provided by financing activities was $61.9 million in the year ended
December 31, 2003 and related primarily to the borrowings under our various
credit agreements, primarily the construction finance facility. Cash flow
provided by financing activities for the year ended December 31, 2002 was $2.3
million and consisted primarily of $4.3 million of net proceeds against our
receivable line of credit offset by $2.0 million of treasury stock purchases.
The $34.9 million of cash flows provided by financing activities in 2001
resulted from the proceeds of the Public Offering, net of the retirement of all
outstanding debt and $2.2 million of treasury stock purchases.

We had negative working capital (current assets less current liabilities) of
$55.0 million at December 31, 2003. This is primarily the result of the
inclusion in current liabilities of $45.6 million of borrowings to finance the
Midnight


                                      -36-
<PAGE>
Express. As this debt is associated with the conversion work on the Midnight
Express, it is classified as current as of December 31, 2003. However, once the
conversion of the Midnight Express is completed and the vessel meets certain
requirements as specified by the finance agreement, the amounts borrowed to
finance the conversion of the Midnight Express are expected to convert to term
loan status and be classified accordingly.

The significant changes in our financial position from December 31, 2002 to
December 31, 2003 are the increase in debt, the increase in property and
equipment, and the increase in the accounts payable balance. Total debt has
increased to $76.3 million as of December 31, 2003 and consists primarily of the
borrowings to finance the conversion of the Midnight Express, the GE Capital
Midnight Wrangler term loan, the GE Commercial Midnight Eagle term loan, and the
receivable line of credit, which are discussed below. Property and equipment has
increased by $75.7 million due to the capital expenditures related to the
expansion of our deepwater fleet and our accounts payable balance has increased
by $7.5 million.

Historically, our capital requirements have been primarily for the acquisition
and improvement of our vessels and related equipment. We expect that as we
continue our entrance into the deepwater market our capital requirements will
continue to be primarily for the conversion and improvement of our vessels.
Capital expenditures totaled $82.5 million for the year ended December 31, 2003,
compared to $24.2 million for the year ended December 31, 2002. Capital
expenditures in 2003 primarily relate to the deepwater expansion of our fleet.
We currently estimate capital expenditures for 2004 to be approximately $37.3
million, primarily representing the conversion of, and the equipment associated
with, the Midnight Express. We expect to fund these capital requirements by
utilizing our bank and debt facilities in addition to cash flow from operations.
Included in this estimate are approximately $4.6 million for routine capital and
drydock inspections of our vessels to be incurred during 2004.

AVAILABLE CREDIT FACILITIES AND DEBT

Regions Bank Facility. In July 2002, we entered into a $35.0 million bank
facility (the "Bank Facility") with Regions Bank, consisting of a $25.0 million
asset-based five-year revolving credit facility and a $10.0 million accounts
receivable-based working capital facility. Our ability to use the asset-based
five-year revolving credit facility was suspended in connection with our
financing of the conversion of the Midnight Express and later terminated in
April 2004 as part of the $19.0 million increase to the construction finance
facility as mentioned above and discussed below. We continue to have available
to us the accounts receivable-based working capital facility from Regions Bank.
In December 2003, the accounts receivable-based working capital facility was
increased to a limit of $15.0 million. Amounts outstanding under the accounts
receivable-based working capital facility may not exceed 85% of eligible trade
accounts receivable. We had $7.2 million outstanding under the $15.0 million
accounts receivable-based working capital facility as of December 31, 2003. In
addition, we issued a $1.5 million standby letter of credit as security for the
charter payments due under the charter agreement for the Midnight Hunter against
the accounts receivable-based working capital facility. In July 2003, this
letter of credit was drawn by Cable Shipping, Inc., the owners of the Midnight
Hunter. We have recorded the $1.5 million as a liability on our balance sheet as
of December 31, 2003 as part of the receivable line of credit. We had available
borrowing capacity of up to an additional $4.0 million under the $15.0 million
accounts receivable-based working capital facility based upon eligible
receivables at December 31, 2003. The $15.0 million accounts receivable-based
working capital facility matures on July 1, 2004 and is renewable on an annual
basis.

Midnight Express $79.0 Million Finance Facility. In April 2003, we finalized a
credit line that matures on June 30, 2004 to finance the conversion of the
Midnight Express (the "Finance Facility"). Amounts outstanding under the credit
line will convert into a three-year term loan facility upon completion of the
conversion of the Midnight Express. The Finance Facility commitment is equally
provided by Regions Bank and Export Development Canada (EDC) ($30.0 million
participation by each). As part of the terms and conditions of the Finance
Facility, Regions Bank suspended the $25.0 million asset-based five-year
revolving credit facility discussed above. In addition, the $2.7 million standby
letter of credit as security for payments related to a crane to be constructed
as part of the Midnight Express conversion was transferred from the Bank
Facility to the Finance Facility. The $2.7 million standby letter of credit was
drawn upon during the third quarter of 2003 and became part of our drawdowns
under the Finance Facility.


                                      -37-
<PAGE>
In April 2004, we increased the credit line from Regions Bank and EDC by $19.0
million to $79.0 million ($39.5 million participation by each) and amended the
maturity to October 31, 2004. The amounts outstanding under the credit line will
convert into two separate loans at the earlier of the facility's maturity date
or completion of the conversion of the Midnight Express. The first loan
represents the original facility of $60.0 million borrowing and will convert to
a three-year term loan facility. The second loan is for the additional $19.0
million and will convert to a twenty-month term loan facility maturing on June
30, 2006. In addition, as part of the increase to the credit facility, the $25.0
million asset-based five-year revolving credit facility was cancelled as
discussed above. Regions Bank and EDC also have the right to the first $10.0
million of any equity offering, to the proceeds from the sale of any of the
mortgaged vessels (see discussion below), and to the interest rate buy-down
expected from Industry Canada upon conversion of the credit line to term status
later in 2004.

The interest rate for the $60.0 million portion of the construction financing is
at a floating rate equal to LIBOR plus a spread of 3.25% to 3.50% based upon our
consolidated leverage ratio (4.38% at December 31, 2003). The interest rate for
the $19.0 million portion of the construction financing is LIBOR plus 4.00%. In
addition, a 1% origination fee ($190,000) was charged by Regions Bank and EDC
for the addition to the credit line and the interest rate on the original $60.0
million financing increased to LIBOR plus 4.00%. We are providing collateral in
the form of the Midnight Express as well as a first preferred ship mortgage on
the Midnight Fox, Midnight Star, Midnight Dancer, Midnight Carrier, Midnight
Brave and Midnight Rider. We have to adhere to various conditions including
maintaining tangible net worth of at least $60.0 million, a minimum debt service
coverage ratio of at least 1.20 to 1, a consolidated leverage ratio of no more
than 2.00 to 1 and a consolidated current ratio (defined below) of 1.30 to 1
(see below for details of amendments). We are not allowed to incur additional
debt over $8.0 million without consent from Regions Bank. As of December 31,
2003, we had $45.6 million outstanding under the $60.0 million Finance Facility,
leaving us a borrowing capacity of $14.4 million under the Finance Facility. The
additional $19.0 million was not available until April 2004, and the funding of
the additional $19.0 million is subject to, among other things, (1) the
completion of certain customary documentation submission requirements, (2) that
no events of default shall have occurred or be continuing, and (3) no material
adverse change in our properties, assets, liabilities, business, operations,
prospects, income or condition (financial or otherwise) shall have occurred
since the effective date (April 8, 2004) and be continuing.

Upon achievement of certain construction completion milestones, but no later
than October 31, 2004, the $79.0 million Finance Facility will convert to term
status. The $60.0 million term loan facility would then have a three-year term
with a 10-year amortization payment schedule consisting of semi-annual payments
with a balloon payment at the end of the three-year term. The interest rate for
this facility is 3.25% over LIBOR. The $19.0 million term loan facility would
then have a twenty-month term with a $6.0 million principal payment due on June
30, 2005, a $6.0 million principal payment due on December 30, 2005 and the
remaining $7.0 million principal payment due on June 30, 2006. Interest would be
payable on a monthly basis based on a rate of LIBOR plus 4.00%. Regions Bank and
EDC will require us to maintain the same collateral and covenants as included in
the construction financing depicted above.

As of December 31, 2003, we were not in compliance with the amended consolidated
current ratio covenant of 1.00 to 1 or the debt service coverage ratio of 1.20
to 1, as stipulated by the Bank Facility, the Finance Facility and the GE
Commercial term loan (see discussion below). The amended consolidated current
ratio is calculated by adding the GE Commercial term loan security deposit of
$1.25 million to current assets and excluding from current liabilities the
current portion of the Finance Facility. For the quarter ended June 30, 2003, we
received covenant waivers from Regions Bank, EDC and GE Commercial for the
non-compliance at that time. In addition, we amended the consolidated current
ratio financial covenant so that we would have to meet a consolidated current
ratio of 1.00 to 1 for the quarters ending September 30, 2003 and December 31,
2003. The consolidated current ratio requirement would return to 1.30 to 1 in
the first quarter of 2004. However, we did not meet the amended consolidated
current ratio covenant as of September 30, 2003 and received covenant waivers
from Regions Bank, EDC and GE Commercial for the non-compliance. In addition, we
amended the consolidated current ratio financial covenant again so that we would
have to meet a consolidated current ratio of 1.00 to 1 as of December 31, 2003
and 1.10 to 1 as of March 31, 2004. The consolidated current ratio requirement
would then return to 1.30 to 1 in the second quarter of 2004. We did not meet
the amended consolidated current ratio covenant or the debt service coverage
ratio as of December 31, 2003. We received convenant waivers subsequent to
December 31, 2003 from Regions Bank, EDC and GE Commercial for the
non-compliance. We amended the consolidated current ratio covenant to 0.70 to 1;
the consolidated current ratio returns to 1.00 to 1 as of March 31, 2005. These
measures have enhanced our ability to achieve compliance; however, there can be
no assurance that continued compliance will be maintained. If compliance


                                      -38-
<PAGE>
is not maintained, all credit agreements could be declared to be in default and
all amounts outstanding, including the $20.0 million of debt associated with the
Midnight Eagle and Midnight Wrangler facilities, currently classified as
long-term could be demanded for payment and creditors would have the right to
seize the applicable collateral. Our obligations under the credit agreements are
secured by substantially all of our assets. Any defaults under the credit
agreements would adversely impact our ability to sustain our operations in the
normal course and have a material adverse effect on our financial condition and
results of operations.

Purchase of the Midnight Wrangler. In December 2002, we entered into a purchase
agreement with Global Marine Systems Limited (Global Marine) for the purchase of
the Wave Alert, to be renamed the Midnight Wrangler, at a cost of approximately
$10.8 million. We took possession of the vessel in March 2003. The purchase of
the vessel was financed by Global Marine over a five-year period with monthly
payments, including 7% per annum interest, of approximately $0.2 million plus a
$1.0 million payment at the purchase in March 2003 and another $1.0 million
payment at the end of the five-year period.

GE Commercial Midnight Eagle Term Loan. In March 2003, we finalized a seven-year
term loan with GE Commercial. Although the principal amount of the term loan is
$9.25 million, we received $8.0 million and GE Commercial retained $1.25 million
as a security deposit. The interest rate on the term loan is the 30-day
commercial paper rate plus 2.03% and includes prepayment penalties of 2% for the
first twelve months, 1% for the second twelve months and 0% thereafter. The term
loan is structured to have monthly payments over seven years. The loan agreement
contains the same financial covenants as the Bank Facility and Finance Facility
discussed above. The collateral for the loan is the Midnight Eagle and the
security deposit described above. We used the proceeds from the loan to fund the
improvements to the Midnight Wrangler and a portion for the Midnight Express
conversion costs.

GE Capital Midnight Wrangler Term Loan. In December 2003, we refinanced the debt
used to acquire the Midnight Wrangler (as discussed above) by entering into a
secured term loan with GE Capital in the principal amount of $15.0 million. The
secured term loan is structured to have quarterly payments over seven years. The
interest rate on the term loan is 4.25% over LIBOR and the terms contained an
origination discount of 1.50%. The loan agreement contains various covenants
beginning on March 31, 2005, including a minimum EBITDA (as defined) of $18.5
million, a minimum fixed charge ratio (as defined) of 1.05 to 1, and a maximum
leverage ratio (as defined) of 5.25 to 1 for the financial quarters ended in the
period from October 1, 2004 through September 30, 2005. These maximum leverage
ratios decline by 0.50 to 1 for each of the following four years (on an annual
basis at October 1st) before reaching 3.25 to 1 which applies for the financial
quarters ended from October 1, 2008 and thereafter. The collateral for the loan
is the Midnight Wrangler, Midnight Runner and Midnight Gator. A final payment
was made to Global Marine in December 2003. This early retirement of debt
resulted in a gain $0.9 million that we have recorded in our income statement
for the year ended December 31, 2003.

CASH REQUIREMENTS

The following table presents our long-term contractual obligations and the
related amounts due, in total and by period, as of December 31, 2003 (in
thousands):

<TABLE>
<CAPTION>
                                                       Payments Due by Period
                                       -------------------------------------------------------
                                                 Less Than 1                           After 5
                                        Total       Year      1-3 Years   4-5 Years     Years
                                       -------   -----------  ---------   ---------    -------
<S>                                    <C>         <C>         <C>         <C>         <C>
Finance Facility .................     $45,639     $45,639     $    --     $    --     $    --
Long-Term Debt ...................      23,453       3,398       6,854       7,009       6,192
Capital Lease Obligations ........         250         250          --          --          --
Operating Leases .................       5,675       4,222       1,402          51          --
Unconditional Purchase Obligations      20,760      20,760          --          --          --
Other Long-Term Obligations ......         300         300          --          --          --
                                       -------     -------     -------     -------     -------
Total Contractual Cash Obligations     $96,077     $74,569     $ 8,256     $ 7,060     $ 6,192
                                       =======     =======     =======     =======     =======
</TABLE>

As discussed above, we expect the Midnight Express construction loan (Finance
Facility) to convert to two different term loans with varying amortization
payment schedules. The majority of the long-term debt obligation consists of


                                      -39-
<PAGE>
the Midnight Eagle term loan with GE Commercial, the Midnight Wrangler term loan
with GE Capital and the receivable line of credit from Regions Bank, all of
which are discussed above.

Included in long-term debt is a note assumed by us as part of the purchase of a
leisure fishing vessel from an investment holding company wholly-owned by Mr.
Stockstill to be used for client and provider entertainment purposes. The total
cost of the vessel was approximately $0.1 million, of which $41,000 was paid
during 2002. The debt assumed will be paid in monthly installments over a
five-year period.

During 2003, we made payments of approximately $4.0 million for the operating
lease obligation relating to our deepwater technology vessel, the Midnight
Arrow, under a five-year charter agreement. We paid approximately $56.8 million
during 2003 in relation to the purchase price and conversion of the Midnight
Express bringing our total as of December 31, 2003 to $76.3 million.

Included in the operating leases are the monthly payments for certain facilities
used in the normal course of operations. However, the majority of the operating
lease obligation relates to our five-year charter agreement of the Midnight
Arrow. Our time charter of the Midnight Hunter is not included in the above
table, as the time charter was not entered into until January 2004. Included in
unconditional purchase obligations and other long-term obligations are the
contracts with equipment suppliers related to the conversion of the Midnight
Express. We expect to finance the Midnight Express contracts with proceeds from
the $79.0 million Finance Facility discussed above.

In August 2001, our Board of Directors approved the repurchase of up to $5.0
million of our outstanding common stock. Purchases were made on a discretionary
basis in the open market or otherwise over a period of time as determined by
management, subject to market conditions, applicable legal requirements and
other factors. In August 2002, we elected to suspend our repurchase program.
However, during 2003, 2,603 shares were repurchased as part of the vesting of
restricted shares for three employees. Under current conditions and to support
our vessel expansion strategy, we do not expect to repurchase shares in the near
future except for certain events as described above. As of April 12, 2004,
712,471 shares had been repurchased at a total cost of $4.3 million.

Consistent with the focus toward investing in new technology, including
deepwater capable assets such as the Midnight Express and the Midnight Wrangler,
five of the last six vessels added to our fleet have been DP-2 deepwater capable
(Midnight Eagle, Midnight Arrow, Midnight Express, Midnight Wrangler and
Midnight Hunter). Through December 31, 2003, we have expended approximately
$135.4 million (in combined capital expenditures, operating lease payments and
purchase payments) for these vessels, with an additional estimated $46.9 million
to be incurred in associated construction costs, operating lease payments and
drydock expenses through 2005 (see Note 11 to the financial statements).

We believe that our cash flow from operations and the Bank Facility will not be
sufficient to meet our existing liquidity needs for the operation of the
business in 2004. We also believe that the options offered by the Finance
Facility, the GE Commercial Midnight Eagle term loan, and the GE Capital
Midnight Wrangler term loan, in addition to our cash flow from operations, will
not be sufficient to complete our identified growth plans. Raising additional
capital during 2004 is a requirement for us to continue to conduct our
operations and meet our debt obligations. We may not be able to raise these
additional funds, or we may not be able to raise such funds on favorable terms.

NEW ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset
Retirement Obligations," effective for fiscal years beginning after June 15,
2002. This statement requires us to record the fair value of liabilities related
to future asset retirement obligations in the period the obligation is incurred.
We adopted SFAS No. 143 on January 1, 2003, which did not impact our financial
position or results of operations.


                                      -40-
<PAGE>
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,"
which revises current guidance with respect to gains and losses on early
extinguishment of debt. Under SFAS No. 145, gains and losses on early
extinguishment of debt are not treated as extraordinary items unless they meet
the criteria for extraordinary treatment in Accounting Principles Board (APB)
Opinion No. 30. We adopted SFAS No. 145 effective January 1, 2003, and as a
result, reclassified the extraordinary losses on early extinguishment of debt
from prior periods in the 2003 financial statements as these amounts did not
qualify for extraordinary treatment under SFAS No.145.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an Amendment of SFAS No. 123," which
provides alternative methods of transition for a voluntary change to the
fair-value based method of accounting for stock-based employee compensation, and
the new standard, which is now effective, amends certain disclosure
requirements. We continue to apply APB No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for our stock-based
compensation; therefore, the alternative methods of transition do not apply. We
have adopted the disclosure requirements of SFAS No. 148 (see Note 2 to the
financial statements).

In June 2001, the American Institute of Certified Public Accountants (AICPA)
issued an exposure draft of a proposed Statement of Position (SOP), "Accounting
for Certain Costs and Activities Related to Property, Plant, and Equipment."
This proposed SOP would change, among other things, the method by which
companies would account for normal, recurring or periodic repairs and
maintenance costs related to "in service" fixed assets. It would require that
these types of expenses be recognized when incurred rather than recognizing
expense for these costs while the asset is productive. The proposed SOP is
expected to be presented to the FASB for clearance in the first half of 2004. If
adopted in its present form, the portion of this SOP relating to planned major
maintenance activities would require us to expense regulatory maintenance cost
on our vessels as incurred (currently capitalized and recognized as "drydocking
cost amortization"), and capitalized costs at the date of adoption would be
charged to operations as a cumulative effect of change in accounting principle.

In January 2003, the FASB issued Financial Interpretation 46, "Consolidation of
Variable Interest Entities -- An Interpretation of Accounting Research Bulletin
(ARB) 51" ("FIN 46" or the "Interpretation"). FIN 46 addresses consolidation by
business enterprises of variable interest entities (VIEs). The primary objective
of the Interpretation is to provide guidance on the identification of, and
financial reporting for, entities over which control is achieved through means
other than voting rights; such entities are known as VIEs. The provisions of FIN
46 apply immediately to VIEs created after January 31, 2003. Application is
required for interests in special-purpose entities in the period ending after
December 15, 2003 and is required for all other types of VIE's in the period
ending after March 15, 2004. We have no VIEs and believe there will be no
material impact on our financial position or results of operations from the
adoption of FIN 46.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This statement
establishes standards for the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. This statement is effective for financial
instruments entered into or modified after May 31, 2003 and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003.


                                      -41-
<PAGE>
These effective dates are not applicable to the provisions of paragraphs 9 and
10 of SFAS No. 150 as they apply to mandatorily redeemable noncontrolling
interests, as the FASB has delayed these provisions indefinitely. The adoption
of SFAS No. 150 had no impact on our financial condition or results of
operations.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations
are based on our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of our financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. There can be no assurance that actual results will not differ
from those estimates. We believe the following accounting policies, which are
described in Note 2 of the notes to our financial statements, represent our
critical accounting policies:

Revenue Recognition - We account for our contracts in progress using the
percentage-of-completion method, as our contracts contain multiple phases of
work. We believe that we have demonstrated the ability to produce reasonably
dependable estimates of the costs under such contracts, and that our business
has not been subject to the types of inherent risks that would raise questions
about the ability of either us or the customer to perform their obligations
under the contract or would make otherwise reasonably dependable contract
estimates doubtful.

Under this method, recognition of earnings on contracts in progress is
calculated based on the ratio of costs incurred as of the reporting date to
total expected costs to be incurred on each contract. Contract costs include all
direct material and labor costs and those indirect costs related to contract
performance, such as indirect labor, supplies, insurance and benefits. General
and administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period during which
such losses are first forecast.

Allowance for Doubtful Accounts - We provide allowances for doubtful accounts
based on historical experience and a review of the current status of existing
accounts receivable balances at the end of each reporting period. Any provisions
for doubtful accounts are recorded as charges to other operating expense. If the
status of an accounts receivable balance changes, we may have to adjust the
allowance for doubtful accounts.

Property and Equipment - Property and equipment are stated at cost less
applicable depreciation. Depreciation is calculated principally using the
straight-line method over the estimated useful lives of the various classes of
depreciable assets. Expenditures for maintenance and repairs are expensed as
incurred. Major expenditures for renewals and improvements that extend the
useful lives of existing assets, interest incurred during vessel construction,
and, when material, vessel construction related overhead and interest are
capitalized.

We assess the realizability of our long-term assets for impairment when events
or certain changes indicate the possibility that the carrying value of any such
asset may not be recoverable. We record impairment losses on long-term assets
used in operations when the carrying value of those assets is less than the
undiscounted cash flows estimated to be generated by those assets. The net
carrying value of assets that are considered to not be fully recoverable are
reduced to fair value. Our estimate of fair value represents our best estimate
based on industry trends and reference to market transactions and is subject to
variability. We recorded an impairment charge of $1.6 million as related to the
Midnight Carrier in the accompanying financial statements pursuant to SFAS No.
144 for the year ended December 31, 2003.

Deferred Drydocking Charges - We are obligated by regulation to periodically
incur refurbishment costs (known as "drydocking" costs) related to the
maintenance and operations of our marine vessels. We capitalize periodic
scheduled drydocking charges when incurred and amortize such costs on a
straight-line basis over a term that approximates the amount of time until the
next required drydocking refurbishment, generally two to three years. As of
December 31, 2003, we had approximately $0.8 million of deferred drydocking
charges, which will be amortized over future periods leading up to the next
required refurbishment. The estimated amortization periods used to recognize
such costs involve the use of management's judgment in deriving such estimates.

Income Taxes - Before our Public Offering in June 2001, we had elected to be
taxed as a flow-through entity under the Internal Revenue Code. Income taxes
related to our operations were recognized directly at the individual taxpayer
level. We recognized no federal or state income taxes for the period from 1997
to the Public Offering.


                                      -42-
<PAGE>
In connection with the Public Offering, we adopted SFAS No. 109, "Accounting for
Income Taxes." This statement requires the use of the liability method of
computing deferred income taxes. Under this method, deferred income taxes are
provided for the temporary differences between the financial reporting basis and
the tax basis of our assets and liabilities. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The assessment of the realization of deferred tax assets, particularly
those related to tax operating loss carryforwards, involves the use of
management's judgment to determine whether it is more likely than not that we
will realize such tax benefits in the future.

SFAS 109 provides for the weighing of positive and negative evidence in
determining whether it is more likely than not that a deferred tax asset is
recoverable. We have incurred losses in 2001 and 2003 and have losses on an
aggregate basis for the three-year period ended December 31, 2003. Despite
management projections of future income, relevant accounting guidance suggests
that a recent history of cumulative losses constitutes significant negative
evidence, and that future expectations about income are overshadowed by such
recent losses. As a result, we established a valuation allowance of $1.3 million
as of December 31, 2003. If we achieve income in 2004, we expect to reverse a
portion of the valuation allowance in an amount at least sufficient to eliminate
any tax provision in that period.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk. We are subject to market risk exposure related to changes in
interest rates on our Bank Facility (when drawn upon), Midnight Eagle term loan
with GE Commercial, Midnight Wrangler term loan with GE Capital, and our Finance
Facility. Interest on borrowings under the Bank Facility accrue at a variable
rate, using LIBOR plus a range of 1.75% to 2.25%, depending upon the level of
our consolidated leverage ratio (as defined) measured on a quarterly basis. Our
Midnight Eagle term loan with GE Commercial includes an interest rate consisting
of the 30-day commercial paper rate plus 2.03%. Our Midnight Wrangler term loan
with GE Capital includes an interest rate consisting of LIBOR plus 4.25%. Under
the Finance Facility, the interest rate during the construction financing phase
is based upon our consolidated leverage ratio and ranges from a LIBOR spread of
3.25% to 3.50% based upon these levels. The $60.0 million term facility of the
Finance Facility is priced at 4.00% over LIBOR and the $19.0 million term
facility of the Finance Facility is priced at LIBOR plus 4.00%.


                                      -43-

<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                              TORCH OFFSHORE, INC.
                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                         PAGE
                                                                         ----
<S>                                                                      <C>
Reports of Independent Auditors ..................................        45

Consolidated Balance Sheets as of December 31, 2003 and 2002 .....        47

Consolidated Statements of Operations for the Years
  Ended December 31, 2003, 2002 and 2001 .........................        48

Consolidated Statements of Changes in Stockholders' Equity for the
  Years Ended December 31, 2003, 2002 and 2001 ...................        49

Consolidated Statements of Cash Flows for the Years Ended
  December 31, 2003, 2002 and 2001 ...............................        50

Notes to Consolidated Financial Statements .......................        51
</TABLE>


                                     - 44 -
<PAGE>
                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Torch Offshore, Inc.

We have audited the accompanying consolidated balance sheets of Torch Offshore,
Inc. as of December 31, 2003 and 2002, and the related consolidated statements
of operations, changes in stockholders' equity, and cash flows for each of the
two years in the period ended December 31, 2003. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. The consolidated
financial statements of Torch Offshore, Inc. for the year ended December 31,
2001 were audited by other auditors who have ceased operations and whose report
dated January 25, 2002 (except with respect to Note 16, as to which the date was
March 1, 2002), expressed an unqualified opinion on those statements.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the 2003 and 2002 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Torch
Offshore, Inc. as of December 31, 2003 and 2002, and the consolidated results of
its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Notes 1 and
14, the Company has incurred a significant operating loss in 2003, and it has a
working capital deficiency primarily as a result of current debt obligations due
in 2004 associated with the construction financing of its significant investment
in a marine vessel, the construction progress for which has experienced certain
unbudgeted cost overruns and unexpected delays in the timing of scheduled
construction completion. In addition, the Company has not complied with certain
covenants of its loan agreements and has had to obtain forbearance waivers and
amendments from its lenders for such matters of noncompliance. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 14. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of these uncertainties.

                                        /s/ ERNST & YOUNG LLP

New Orleans, Louisiana,
April 13, 2004


                                     - 45 -
<PAGE>
THIS IS A COPY OF THE AUDIT REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP IN
CONNECTION WITH TORCH OFFSHORE, INC.'S FILING ON FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2001. THIS AUDIT REPORT HAS NOT BEEN REISSUED BY ARTHUR
ANDERSEN LLP IN CONNECTION WITH THIS FILING ON FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2003.

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of Torch Offshore, Inc.:

We have audited the accompanying consolidated balance sheets of Torch Offshore,
Inc. (a Delaware corporation) and subsidiary as of December 31, 2001 and 2000,
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Torch Offshore,
Inc. and subsidiary as of December 31, 2001 and 2000, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.

                                        ARTHUR ANDERSEN LLP

New Orleans, Louisiana,
January 25, 2002 (except with
respect to Note 16, as to which
the date is March 1, 2002)


                                     - 46 -
<PAGE>
                              TORCH OFFSHORE, INC.
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                                            DECEMBER 31,
                                                                                                       2003              2002
                                                                                                       ----              ----
<S>                                                                                                 <C>               <C>
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents ................................................................        $      41         $     327
  Accounts receivable --
    Trade, less allowance for doubtful accounts of $1,978 and $1,132, respectively .........           20,479            25,226
    Other ..................................................................................               --                37
  Costs and estimated earnings in excess of billings on uncompleted contracts ..............               --             2,036
  Prepaid expenses and other ...............................................................            3,561             3,747
                                                                                                    ---------         ---------
        Total current assets ...............................................................           24,081            31,373

PROPERTY AND EQUIPMENT, at cost, less accumulated depreciation .............................          143,266            67,561
DEFERRED DRYDOCKING CHARGES, less accumulated amortization .................................              807             2,831
SECURITY DEPOSIT (Note 7) ..................................................................            1,250                --
OTHER ASSETS ...............................................................................              502               139
                                                                                                    ---------         ---------
        Total assets .......................................................................        $ 169,906         $ 101,904
                                                                                                    =========         =========

LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES:

  Accounts payable -- trade ................................................................        $  15,148         $   7,677
  Accrued expenses .........................................................................            4,597             3,696
  Accrued payroll and related taxes ........................................................              819               857
  Financed insurance premiums ..............................................................            1,832             2,553
  Billings in excess of costs and estimated earnings on uncompleted contracts ..............              459                --
  Deferred income taxes ....................................................................               --               287
  Finance Facility (Note 7) ................................................................           45,639                --
  Current portion of long-term debt (Note 7) ...............................................            3,396                14
  Receivable line of credit (Note 7) .......................................................            7,227             4,271
                                                                                                    ---------         ---------
        Total current liabilities ..........................................................           79,117            19,355

DEFERRED INCOME TAXES ......................................................................               --             2,636

LONG-TERM DEBT, less current portion (Note 7) ..............................................           20,057                46

COMMITMENTS AND CONTINGENCIES (Notes 11 and 14)

STOCKHOLDERS' EQUITY:
  Preferred stock, $0.01 par value; 10,000 authorized shares; none issued and outstanding ..               --                --
  Common stock, $0.01 par value; 100,000 authorized shares; 13,396 shares in 2003 and 13,399
   shares in 2002 issued and outstanding ...................................................              134               134
  Additional paid-in-capital ...............................................................           85,618            85,638
  Deferred compensation ....................................................................             (363)             (492)
  Treasury stock, at cost, 712 shares in 2003 and 710 shares in 2002 .......................           (4,252)           (4,234)
  Retained earnings (deficit) ..............................................................          (10,405)           (1,179)
                                                                                                    ---------         ---------
        Total stockholders' equity .........................................................           70,732            79,867
                                                                                                    ---------         ---------
        Total liabilities and stockholders' equity .........................................        $ 169,906         $ 101,904
                                                                                                    =========         =========
</TABLE>


  The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                     - 47 -
<PAGE>
                              TORCH OFFSHORE, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                 YEARS ENDED DECEMBER 31,
                                                                         2003             2002             2001
                                                                         ----             ----             ----
<S>                                                                    <C>              <C>              <C>
Revenues ......................................................        $ 65,557         $ 67,990         $ 59,052
Cost of revenues:
  Cost of sales ...............................................          59,170           53,341           43,190
  Depreciation and amortization ...............................           9,368            7,540            6,376
  General and administrative expenses .........................           6,536            4,767            3,982
  Other operating expense (Notes 2 and 6) .....................           3,518            1,966              950
                                                                       --------         --------         --------
         Total cost of revenues ...............................          78,592           67,614           54,498
                                                                       --------         --------         --------
Operating income (loss) .......................................         (13,035)             376            4,554
                                                                       --------         --------         --------
Other income (expense):
  Interest expense ............................................              --               --           (1,642)
  Interest income .............................................               1              232              468
  Gain (loss) on early retirement of debt (Notes 2 and 7) .....             885               --             (766)
                                                                       --------         --------         --------
         Total other income (expense) .........................             886              232           (1,940)
                                                                       --------         --------         --------
Income (loss) before income taxes and dividends ...............         (12,149)             608            2,614
Income tax benefit (expense) ..................................           2,923             (213)          (3,165)
                                                                       --------         --------         --------
Net income (loss) .............................................          (9,226)             395             (551)
Preferred unit dividends and accretion ........................              --               --             (190)
                                                                       --------         --------         --------
Net income (loss) attributable to common stockholders .........        $ (9,226)        $    395         $   (741)
                                                                       ========         ========         ========

Basic and diluted income (loss) per common share (Note 2):

  Weighted average shares of common stock outstanding - Basic
                                                                         12,637           12,692           10,845
                                                                       ========         ========         ========
  Weighted average shares of common stock outstanding - Diluted
                                                                         12,637           12,695           10,845
                                                                       ========         ========         ========

  Net income (loss) per share - Basic .........................        $  (0.73)        $   0.03         $  (0.07)
                                                                       ========         ========         ========
  Net income (loss) per share - Diluted .......................        $  (0.73)        $   0.03         $  (0.07)
                                                                       ========         ========         ========
</TABLE>


  The accompanying notes are an integral part of these consolidated financial
                                  statements.



                                     - 48 -
<PAGE>
                              TORCH OFFSHORE, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                         COMMON STOCK
                                          OUTSTANDING        ADDITIONAL  DEFERRED    TREASURY STOCK       RETAINED        TOTAL
                                        ----------------      PAID-IN     COMPEN-   -----------------     EARNINGS     STOCKHOLDERS'
                                        SHARES     AMOUNT     -CAPITAL    SATION    SHARES     AMOUNT     (DEFICIT)       EQUITY
                                        ------     ------     --------    ------    ------     ------     ---------       ------
<S>                                     <C>        <C>       <C>         <C>        <C>      <C>          <C>          <C>
BALANCE, January 1, 2001 .........       7,505        --          239         --       --          --         6,072         6,311
  Net income prior to Public
   Offering ......................          --        --           --         --       --          --         1,023         1,023
  Preferred unit dividends
   and accretion .................          --        --           --         --       --          --          (190)         (190)
  Exchange of membership interests         828        83       11,535         --       --          --        (6,905)        4,713
                                       -------      ----     --------      -----      ---     -------      --------      --------
BALANCE, Prior to Public Offering        8,333        83       11,774         --       --          --            --        11,857
  Issuance of public shares, net .       5,000        50       72,900         --       --          --            --        72,950
  Issuance of restricted shares ..          33         1          525       (526)      --          --            --            --
  Deferred compensation earned ...          --        --           --         53       --          --            --            53
  Repurchases of common stock ....          --        --           --         --      410      (2,245)           --        (2,245)
  Net loss after Public Offering .          --        --           --         --       --          --        (1,574)       (1,574)
                                       -------      ----     --------      -----      ---     -------      --------      --------
BALANCE, December 31, 2001 .......      13,366       134       85,199       (473)     410      (2,245)       (1,574)       81,041
  Issuance of restricted shares ..          33        --          196       (141)      --          --            --            55
  Revision to Public Offering
   cost tax benefit ..............          --        --          243         --       --          --            --           243
  Deferred compensation earned ...          --        --           --        122       --          --            --           122
  Repurchases of common stock ....          --        --           --         --      300      (1,989)           --        (1,989)
  Net income .....................          --        --           --         --       --          --           395           395
                                       -------      ----     --------      -----      ---     -------      --------      --------
BALANCE, December 31, 2002 .......      13,399       134       85,638       (492)     710      (4,234)       (1,179)       79,867
  Deferred compensation earned ...          --        --           --        129       --          --            --           129
  Forfeiture restricted stock ....          (3)       --          (20)        --       --          --            --           (20)
  Repurchases of common stock ....          --        --           --         --        2         (18)           --           (18)
  Net loss .......................          --        --           --         --       --          --        (9,226)       (9,226)
                                       -------      ----     --------      -----      ---     -------      --------      --------
BALANCE, December 31, 2003 .......      13,396      $134     $ 85,618      $(363)     712     $(4,252)     $(10,405)     $ 70,732
                                       =======      ====     ========      =====      ===     =======      ========      ========
</TABLE>


   The accompanying notes are an integral part of these consolidated financial
                                   statements.


                                     - 49 -
<PAGE>
                              TORCH OFFSHORE, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                          YEARS ENDED DECEMBER 31,
                                                                                     2003           2002           2001
                                                                                     ----           ----           ----
<S>                                                                                <C>            <C>            <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss) ...........................................................      $ (9,226)      $    395       $   (551)
  Depreciation and amortization .............................................         7,810          7,540          6,376
  Write off of vessel costs .................................................         1,558          1,052            950
  Deferred income tax provision (benefit) ...................................        (2,923)           213          4,241
  Provision for doubtful accounts ...........................................         3,535            914             --
  (Gain) loss on early retirement of debt ...................................          (885)            --            498
  Severance and reorganizational costs, net paid ............................            --             --         (1,764)
  Deferred drydocking costs incurred ........................................          (314)        (2,332)        (1,253)
(Increase) decrease in working capital:
  Accounts receivable .......................................................         1,249        (14,854)        (1,457)
  Costs and estimated earnings in excess of billings on uncompleted contracts         2,495           (436)        (1,077)
  Prepaid expenses, net of financed portion .................................          (535)           390           (911)
  Accounts payable -- trade .................................................         7,471          3,553         (3,685)
  Accrued payroll and related taxes .........................................           (38)            66            331
  Accrued expenses and other ................................................           397          1,220            721
                                                                                   --------       --------       --------
Net cash provided by (used in) operating activities .........................        10,594         (2,279)         2,419
                                                                                   --------       --------       --------
CASH FLOWS USED IN INVESTING ACTIVITIES:
  Purchases of property and equipment .......................................       (72,753)       (24,229)       (13,741)
                                                                                   --------       --------       --------
Net cash used in investing activities .......................................       (72,753)       (24,229)       (13,741)
                                                                                   --------       --------       --------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
  Proceeds from initial public offering .....................................            --             --         80,000
  Payments of initial public offering costs .................................            --             --         (7,400)
  Net proceeds from (payments on) receivable line of credit .................         2,956          4,271         (3,436)
  Proceeds from Finance Facility ............................................        45,639             --             --
  Proceeds from long-term debt ..............................................        23,000             60             --
  Payments on long-term debt ................................................        (9,704)            --        (30,821)
  Premium/cost of debt extinguishment .......................................            --             --           (766)
  Treasury stock purchases ..................................................           (18)        (1,989)        (2,245)
  Stockholder distributions .................................................            --             --           (403)
                                                                                   --------       --------       --------
Net cash provided by financing activities ...................................        61,873          2,342         34,929
                                                                                   --------       --------       --------

Net increase (decrease) in cash .............................................          (286)       (24,166)        23,607
Cash at beginning of year ...................................................           327         24,493            886
                                                                                   --------       --------       --------
Cash at end of year .........................................................      $     41       $    327       $ 24,493
                                                                                   ========       ========       ========
Interest paid (net of amounts capitalized) ..................................      $     --       $     --       $  1,943
                                                                                   ========       ========       ========
Income taxes paid ...........................................................      $     --       $     --       $     --
                                                                                   ========       ========       ========
SUPPLEMENTARY NON-CASH INVESTING AND FINANCING ACTIVITIES:
Purchase of Midnight Wrangler (fully financed - see Note 7) .................      $ (9,731)      $     --       $     --
                                                                                   ========       ========       ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                     - 50 -
<PAGE>
                              TORCH OFFSHORE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   NATURE OF BUSINESS AND LIQUIDITY MATTERS:

Torch Offshore, Inc., a Delaware corporation, and its subsidiaries
(collectively, the "Company") provide integrated pipeline installation, subsea
construction and support services to the offshore oil and natural gas industry,
primarily in the United States Gulf of Mexico (the "Gulf of Mexico"). The
Company's focus has been providing services primarily for oil and natural gas
production in water depths of 20 to 300 feet in the Gulf of Mexico (the
"Shelf"). Over the past few years, the Company has expanded its operations,
fleet capabilities and management expertise to enable it to provide services
analogous to those services it provides on the Shelf in water depths up to
10,000 feet on a global basis.

Torch, Inc. (Torch), the predecessor in interest to Torch Offshore, L.L.C., was
incorporated in Louisiana in 1978. Torch is owned by Lyle G. Stockstill and Lana
J. Hingle Stockstill (Mr. and Mrs. Stockstill), the founders of the Company. In
May 2000, Torch Offshore, L.L.C. was formed to hold substantially all of the
assets and liabilities of Torch. In January 2001, the Board of Directors of
Torch formed Torch Offshore, Inc., which filed a registration statement on Form
S-1 with the Securities and Exchange Commission (the "SEC") to register and sell
common stock of the Company. In June 2001, the Company completed its initial
public offering (the "Public Offering") of 5.0 million shares of its common
stock at $16.00 per share, raising gross proceeds of $80.0 million; net proceeds
were $72.6 million after underwriting commission and discounts and expenses
totaling $7.4 million.

In connection with the Public Offering, all membership interests in Torch
Offshore, L.L.C. (including preferred unit interests) were contributed to the
Company in exchange for common shares of the Company. In the aggregate, Mr. and
Mrs. Stockstill presently own a majority of the Company through their ownership
of Torch. For financial reporting purposes, these transactions were considered a
recapitalization, and as such, all historical share data included in the
accompanying financial statements has been restated (see Note 3).

In 2002, the Company established Torch Express, L.L.C., a wholly-owned
subsidiary, for the purpose of converting the Midnight Express into a
dynamically positioned (DP-2) offshore construction vessel capable of working in
deepwater areas worldwide (see Notes 6 and 7). Torch Venture, L.L.C. and Torch
Offshore de Mexico S. de R.L. de C.V. were formed in 2003 so the Company could
commence bidding operations in Mexico directly to Petroleos Mexicanos (PEMEX).
The Company was unsuccessful in obtaining any work during 2003 from PEMEX and
sold its ownership interest in Torch Offshore de Mexico S. de R.L. de C.V. to
its Mexican partner in late 2003. The Company incurred approximately $0.5
million of costs to establish and commence these bidding operations during 2003.

The Company's level of activity is driven by the condition of the oil and
natural gas industry, especially the level of capital expenditures by the oil
and natural gas companies. There are many factors that drive these activity
levels, including worldwide demand for oil and natural gas and oil and natural
gas prices, discoveries of new reserves, the amount of capital associated with
developing new oil and natural gas fields, the need for repairs and maintenance,
and regulatory requirements. Historically, the level of demand in the industry
has been quite volatile. During 2003, market conditions in the Gulf of Mexico
were weak as offshore drilling was depressed. Oil and natural gas companies did
not spend resources because of the sluggishness of the U.S. economy and the
industry-wide speculation about natural gas pricing trends. Although the U.S.
land rig count increased, a similar development did not transpire in offshore
drilling. The jack-up rig count, a key measure of market strength for the
Company, remained depressed. These forces have driven market prices to low
levels, and as a result, have negatively impacted the gross margins that the
Company has traditionally experienced.

As a result of these market conditions, $3.1 million of costs related to the
recent arbitration ruling in the Midnight Hunter case (including arbitration
legal costs - see Note 6), charges of $3.0 million related to receivable and
claims write-offs, and a $1.6 million asset impairment charge for the Midnight
Carrier, the Company has experienced significant financial losses in 2003. The
Company has a significant working capital deficit position primarily


                                     - 51 -
<PAGE>
resulting from the current classification of the Midnight Express construction
finance facility which matures on October 31, 2004, the construction progress
for which has recently experienced certain delays impacting its estimated date
of completion. In addition, for the three most recent fiscal quarters, the
Company was not in compliance with certain covenants under its debt agreements
and had to obtain waivers and certain revisions to prospective financial
performance measurement ratio requirements from its lenders to enhance the
Company's ability to maintain compliance. These conditions place a high degree
of pressure on the Company's liquidity management and could ultimately impact
the Company's operations and future business plans. Management believes,
however, that the Company has the ability to sustain its operations and meet its
financial commitments, at least for the near-term, through effective management
of its operations, the available liquidity provided through its credit
facilities and the execution of its financial plan. However, if the Company
continues to incur significant cash losses or if availability provided through
the Company's credit facilities is curtailed, the Company's ability to continue
to manage its liquidity needs and meet its operating and other financial
commitments may be jeopardized in the future. See Note 14 for further discussion
regarding the Company's capital resources and liquidity position.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

A summary of significant accounting policies follows:

Principles of Consolidation - The consolidated financial statements include the
accounts of Torch Offshore, Inc. and its wholly-owned subsidiaries, Torch
Offshore, L.L.C., Torch Express, L.L.C., Torch Venture, L.L.C. and Torch
Offshore de Mexico S. de R.L. de C.V. All significant intercompany balances and
transactions have been eliminated in consolidation.

Basis of Presentation - The Company's financial statements are prepared in
accordance with accounting principles generally accepted in the United States.
As further discussed in Notes 1 and 14, the Company faces significant financial
liquidity issues in 2004 as a result of adverse business conditions in its
operating sector and as a result of significant current debt obligations due in
2004 associated with the construction financing of the Midnight Express, the
construction progress for which has experienced certain unbudgeted cost overruns
and unexpected delays in the timing of scheduled construction completion. In
addition, the Company has not complied with certain convents of its loan
agreements and has had to obtain forbearance waivers and amendments from its
lenders for such matters of noncompliance. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters, which involve inherent uncertainties and
conditions beyond the Company's control, are also discussed in Note 14. The
accompanying financial statements have been prepared on the basis that the
Company will continue as a going concern and do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of these uncertainties.

Use of Estimates - The presentation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

Cash and Cash Equivalents - The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents. The
carrying amount of these instruments approximates fair value because of their
short maturity.

Allowance for Doubtful Accounts - The Company provides allowances for doubtful
accounts based on historical experience and a review of the current status of
existing accounts receivable balances at the end of each reporting period.
Provisions for doubtful accounts are recorded as charges to other operating
expense. Activity within the allowance for doubtful accounts follows (in
thousands):

<TABLE>
<CAPTION>
                                    2003           2002         2001
                                    ----           ----         ----
<S>                               <C>             <C>           <C>
         Beginning balance        $ 1,132         $  218        $ 607
         Provision .......          3,535            914           --
</TABLE>



                                     - 52 -
<PAGE>
<TABLE>
<S>                               <C>             <C>           <C>
         Deductions ......         (2,689)            --         (389)
                                  -------         ------        -----
         Ending Balance ..        $ 1,978         $1,132        $ 218
                                  =======         ======        =====
</TABLE>

Property and Equipment - Property and equipment are stated at cost less
applicable depreciation. Depreciation is calculated principally using the
straight-line method over the estimated useful lives of the various classes of
depreciable assets. Expenditures for maintenance and repairs are expensed as
incurred. Major expenditures for renewals and improvements that extend the
useful lives of existing assets, interest incurred during vessel construction,
and, when material, vessel construction related overhead are capitalized. For
the year ended December 31, 2003 and 2002, interest costs of $1.7 million and
$0.1 million, respectively, were capitalized as they were related to the
construction of the Midnight Express (see Note 6). There was no interest
capitalized for the year ended December 31, 2001.

The Company periodically assesses the realizability of its long-term assets
pursuant to Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144,
which superseded SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," revised the guidance with
respect to the process for measuring impairment of long-lived assets. An asset
impairment is recognized if the future undiscounted cash flows of the asset are
less than the carrying value of the asset. The impairment loss to be recognized
is measured as the amount by which the carrying value of the asset exceeds its
fair value. The Company adopted this standard effective January 1, 2002. An
impairment charge of $1.6 million was recorded in relation to the Midnight
Carrier (included in depreciation and amortization) for the year ending December
31, 2003. The Company's estimate of fair value with respect to the vessel was
based upon an unsolicited offer to purchase the vessel received from an
unrelated third party, which the Company believes represents its best estimate
of fair value as of December 31, 2003. No impairment charges were recorded for
the years ending December 31, 2002 or 2001.

Deferred Drydocking Charges - The Company is obligated by regulation to
periodically incur refurbishment costs (known as "drydocking" costs) related to
the maintenance and operation of its marine vessels. The Company capitalizes
periodic scheduled drydocking charges when incurred and amortizes such costs on
a straight-line basis over a term that approximates the amount of time until the
next required drydocking refurbishment, generally two to three years.
Amortization expense for deferred drydocking charges totaled $2,324,000 in 2003,
$2,745,000 in 2002 and $2,562,000 in 2001.

Revenue Recognition - The Company accounts for its contracts in progress using
the percentage-of-completion method, as its contracts contain multiple phases of
work. The Company believes that it has demonstrated the ability to produce
reasonably dependable estimates of the costs under such contracts, and that its
business has not been subject to the types of inherent risks that would raise
questions about the ability of either the Company or the customer to perform
their obligations under the contract or would make otherwise reasonably
dependable contract estimates doubtful.

Under this method, recognition of earnings (loss) on contracts in progress is
calculated based on the ratio of costs incurred as of the reporting date to
total expected costs to be incurred on each contract.

Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor, supplies,
insurance and benefits. General and administrative costs are charged to expense
as incurred. Provisions for estimated losses on uncompleted contracts are made
in the period during which such losses are first forecast.

The asset caption "Costs and Estimated Earnings in Excess of Billings on
Uncompleted Contracts" represents revenues (loss) recognized in excess of
amounts billed.

Income Taxes - Prior to the Public Offering in June 2001, the Company had
elected to be taxed as a flow-through entity under the Internal Revenue Code.
Income taxes related to the operations of the Company were recognized directly
at the individual taxpayer level. Therefore, the Company recognized no federal
or state income tax for the period from 1997 until the Public Offering.


                                     - 53 -

<PAGE>
In connection with the Public Offering, the Company adopted SFAS No. 109,
"Accounting for Income Taxes." This statement requires the use of the liability
method of computing deferred income taxes. Under this method, deferred income
taxes are provided for the temporary differences between the financial reporting
basis and the tax basis of the Company's assets and liabilities. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled.

Segments - The Company's business is considered a single operation with no
separately reportable segments in accordance with SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information." The Company has
domestic operations in one industry segment, the marine construction service
industry.

Earnings Per Share - The Company follows SFAS No. 128, "Earnings per Share."
Basic earnings per share is calculated by dividing income attributable to common
stockholders by the weighted-average number of common shares outstanding for the
applicable period, without adjustment for potential common shares outstanding in
the form of options, warrants, convertible securities or contingent stock
agreements. For the calculation of diluted earnings per share, the number of
common shares outstanding are increased (if deemed dilutive) by the number of
additional common shares that would have been outstanding if the dilutive
potential common shares had been issued, determined using the treasury stock
method where appropriate.

<TABLE>
<CAPTION>
                                                           NET
(in thousands, except per share data)                     INCOME/                          PER SHARE
                                                          (LOSS)            SHARES          AMOUNT
                                                        ----------        ----------      ----------
<S>                                                     <C>                   <C>         <C>
2003
Basic Loss Per Share:
  Loss attributable to common stockholders ...........  $   (9,226)           12,637      $    (0.73)
  Impact of stock options and restricted stock
   (none due to anti-dilutive effect) ................          --                --
                                                        ----------        ----------
Diluted Loss Per Share ...............................  $   (9,226)           12,637      $    (0.73)
                                                        ==========        ==========      ==========

2002
Basic Earnings Per Share:
  Earnings attributable to common stockholders .......  $      395            12,692      $     0.03
  Impact of stock options and restricted stock .......          --                 3
                                                        ----------        ----------
Diluted Earnings Per Share ...........................  $      395            12,695      $     0.03
                                                        ==========        ==========      ==========

2001
Basic Loss Per Share:
  Loss attributable to common stockholders ...........  $     (741)           10,845      $    (0.07)
  Impact of stock options and restricted stock
   (none due to anti-dilutive effect) ................          --                --
                                                        ----------        ----------
Diluted Loss Per Share ...............................  $     (741)           10,845      $    (0.07)
                                                        ==========        ==========      ==========
</TABLE>

Common stock equivalents (related to stock options) excluded from the
calculation of the diluted earnings per share, because they were anti-dilutive,
were approximately 358,000 shares for 2003, 351,000 shares for 2002 and 224,000
shares for 2001.



                                      -54-
<PAGE>

Stock-Based Compensation - The Company accounts for its stock-based compensation
in relation to the 2001 Long-Term Incentive Plan in accordance with Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees." However, SFAS No. 123, "Accounting for Stock-Based Compensation,"
and SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure - An Amendment of SFAS No. 123", permits the intrinsic value-based
method prescribed by APB No. 25, but requires additional disclosures, including
pro forma calculations of earnings and net earnings per share as if the
fair-value method of accounting prescribed by SFAS No. 123 had been applied. If
compensation expense had been determined using the fair-value method in SFAS No.
123, the Company's net income (loss) and earnings (loss) per share would have
been as shown in the pro forma amounts below:

<TABLE>
<CAPTION>
(in thousands, except per share data)                           2003            2002          2001
                                                           ---------       ---------     ---------
<S>                                                        <C>             <C>           <C>
Net income (loss), as reported ..........................  $  (9,226)      $     395     $    (741)
  Add: Stock-based compensation expense included
    in net income (loss), net of tax ....................        128             122            53
  Less: Stock-based compensation expense using fair
    value method, net of tax ............................       (517)           (453)         (236)
                                                           ---------       ---------     ---------
  Pro forma net income (loss) ...........................  $  (9,615)      $      64     $    (924)
                                                           =========       =========     =========

  Basic income (loss) per share .........................  $   (0.73)      $    0.03     $   (0.07)
  Pro forma basic income (loss) per share ...............  $   (0.76)      $    0.01     $   (0.09)

  Diluted income (loss) per share .......................  $   (0.73)      $    0.03     $   (0.07)
  Pro forma diluted income (loss) per share .............  $   (0.76)      $    0.01     $   (0.09)
</TABLE>

The weighted average fair value at date of grant for options granted during the
years ended December 31, 2003, 2002 and 2001, was $3.08, $5.31 and $10.98 per
share, respectively. The fair value of options granted is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions for the years ended December 31, 2003, 2002 and
2001, respectively: (a) dividend yield of 0.00%, 0.00% and 0.00%; (b) expected
volatility of 52.91%, 58.19% and 76.40%; (c) risk-free interest rate of 3.50%,
4.78% and 4.88%; and (d) expected life of 7.0 years, 7.0 years and 5.0 years.

It is our practice to issue stock options at the market value of the underlying
stock, and therefore, no compensation expense is recorded for these stock
options (see Note 12).

New Accounting Standards - In July 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 143, "Accounting for Asset Retirement Obligations,"
effective for fiscal years beginning after June 15, 2002. This statement
requires the Company to record the fair value of liabilities related to future
asset retirement obligations in the period the obligation is incurred. The
Company adopted SFAS No. 143 on January 1, 2003, which did not impact its
financial position or results of operations.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,"
which revises current guidance with respect to gains and losses on early
extinguishment of debt. Under SFAS No. 145, gains and losses on early
extinguishment of debt are not treated as extraordinary items unless they meet
the criteria for extraordinary treatment in APB No. 30. The Company adopted SFAS
No. 145 effective January 1, 2003, and as a result, reclassified the
extraordinary losses on early


                                      -55-
<PAGE>
extinguishment of debt from prior periods in the 2003 financial statements as
these amounts no longer qualify for extraordinary treatment under SFAS No. 145.

In December 2002, the FASB issued SFAS No. 148, which provides alternative
methods of transition for a voluntary change to the fair-value based method of
accounting for stock-based employee compensation, and the new standard, which is
now effective, amends certain disclosure requirements. The Company continues to
apply APB No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its stock-based compensation; therefore, the
alternative methods of transition do not apply. The Company has adopted the
disclosure requirements of SFAS No. 148 (see "Stock-Based Compensation" above).

In June 2001, the American Institute of Certified Public Accountants (AICPA)
issued an exposure draft of a proposed Statement of Position (SOP), "Accounting
for Certain Costs and Activities Related to Property, Plant, and Equipment."
This proposed SOP would change, among other things, the method by which
companies would account for normal, recurring or periodic repairs and
maintenance costs related to "in service" fixed assets. It would require that
these types of expenses be recognized when incurred rather than recognizing
expense for these costs while the asset is productive. The proposed SOP is
expected to be presented to the FASB for clearance in the first half of 2004. If
adopted in its present form, the portion of this SOP relating to planned major
maintenance activities would require the Company to expense regulatory
maintenance cost on its vessels as incurred (currently capitalized and
recognized as "drydocking cost amortization"), and capitalized costs at the date
of adoption would be charged to operations as a cumulative effect of change in
accounting principle.

In January 2003, the FASB issued Financial Interpretation 46, "Consolidation of
Variable Interest Entities -- An Interpretation of Accounting Research Bulletin
(ARB) 51" ("FIN 46" or the "Interpretation"). FIN 46 addresses consolidation by
business enterprises of variable interest entities (VIEs). The primary objective
of the Interpretation is to provide guidance on the identification of, and
financial reporting for, entities over which control is achieved through means
other than voting rights; such entities are known as VIEs. The provisions of FIN
46 apply immediately to VIEs created after January 31, 2003. Application is
required for interests in special-purpose entities in the period ending after
December 15, 2003 and is required for all other types of VIE's in the period
ending after March 15, 2004. The Company has no VIEs and believes there will be
no material impact on the financial position or results of operations from the
adoption of FIN 46.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This statement
establishes standards for the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. This statement is effective for financial
instruments entered into or modified after May 31, 2003 and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. These effective dates are not applicable to the provisions of paragraphs 9
and 10 of SFAS No. 150 as they apply to mandatorily redeemable noncontrolling
interests, as the FASB has delayed these provisions indefinitely. The adoption
of SFAS No. 150 had no impact on the Company's financial condition or results of
operations.

3.    RECAPITALIZATION:

In May 2000, Torch transferred, at historical cost, substantially all assets,
liabilities and operations to a newly formed


                                      -56-
<PAGE>
subsidiary, Torch Offshore, L.L.C., in exchange for common membership units of
Torch Offshore, L.L.C. Immediately following the transfer, Torch Offshore,
L.L.C. issued 7% Convertible Preferred Membership Units (Preferred Units) to an
outside investor for $5.3 million. The Preferred Units were converted to 828,333
shares of common stock of the Company just prior to the Public Offering.

4.    CONCENTRATIONS OF CREDIT RISK:

Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash deposits and trade accounts receivable.
The Company at times has cash on deposit at financial institutions that is in
excess of federally insured limits. Also, the Company's trade receivables are
generally unsecured except for lien rights, and are due from customers,
substantially all of whom are engaged in the production and development of oil
and natural gas located in the Gulf of Mexico.

5.    COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED
      CONTRACTS:

Costs and estimated earnings in excess of billings on uncompleted contracts
/(Billings in excess of costs and estimated earnings on uncompleted contracts)
consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                             2003        2002
                                                          ----------  ----------
<S>                                                       <C>         <C>
Costs incurred .........................................  $    5,094  $    4,287
Estimated earnings .....................................         252       2,809
                                                          ----------  ----------
                                                               5,346       7,096
Less billings ..........................................       5,805       5,060
                                                          ----------  ----------
                                                          $     (459) $    2,036
                                                          ==========  ==========
</TABLE>

6.    PROPERTY AND EQUIPMENT:

The major classifications and estimated useful lives of property and equipment
follow (in thousands, except useful life data):

<TABLE>
<CAPTION>
                                                                         ESTIMATED
                                                                          USEFUL
                                                DECEMBER 31,               LIVES
                                             2003         2002          (IN YEARS)
                                          ----------   ----------       ----------
<S>                                       <C>          <C>              <C>
Leasehold improvements .................  $      472   $      398            5
Vessels ................................      85,817       63,359           7-20
Vessels under construction .............      79,995       21,838           --
Furniture and fixtures .................         734          646           2-5
Equipment ..............................         932        1,289            5
Automobiles and trucks .................         293          368           3-5
                                          ----------    ----------
                                             168,243        87,898
Less accumulated depreciation ..........     (24,977)     (20,337)
                                          ----------    ----------
                                          $  143,266    $   67,561
                                          ==========    ==========
</TABLE>

Depreciation expense totaled $5,486,000 for 2003, $4,795,000 for 2002 and
$3,814,000 for 2001. During the years ended December 31, 2003 and December 31,
2002, $1,707,000 and $136,000, respectively, of interest related to vessel
construction was capitalized (see Note 2).

In January 2002, the Company entered into an agreement for the purchase of the
Smit Express, a 520-foot vessel, from Smit International for $9.75 million. The
Company is converting the vessel into a DP-2 offshore construction vessel and
has renamed it the Midnight Express. The majority of the amount in "Vessels
Under Construction" above relates to the conversion of the Midnight Express (see
Notes 7 and 14).

Formerly included in "Vessels Under Construction" were the engineering, design,
legal and other costs associated with the Company's efforts to pursue
construction of the Midnight Warrior. However, the Company tabled the


                                      -57-
<PAGE>
construction of this vessel with the acquisition of the Midnight Express. The
Midnight Express will be similar to the proposed Midnight Warrior in various
aspects; therefore, many of the costs incurred to pursue construction of the
Midnight Warrior are being utilized in the conversion of the Midnight Express.
The Company reviewed the costs included in "Vessels Under Construction" at
December 31, 2001 and recorded a charge of $950,000 in 2001 for certain
identifiable costs that were deemed to have no value to the conversion of the
Midnight Express. Additional charges of $185,000 were recognized in 2002 related
to the Company's change in pursuit from the Midnight Warrior project to the
Midnight Express project.

In December 2002, the Company entered into an agreement for the purchase of the
Wave Alert, a 340-foot cable-laying DP-2 vessel from Global Marine Shipping
Limited (Global Marine). The Company took possession of the vessel in March
2003, at which time it was renamed the Midnight Wrangler. The vessel was
delivered without cable laying equipment and directly from its required drydock.
A 125-ton crane, a modular pipelay system and additional accommodations were
installed on the vessel by the Company before it joined the active fleet in
August 2003 (see Note 7).

In June 2001, the Company purchased an existing pipelay/bury barge, the BH-400
(renamed the Midnight Rider), for $9.5 million. This barge completed a required
drydocking and was placed into service in late 2001.

7.    LONG-TERM DEBT:

In June 2001, the Company repaid all of its previous debt with proceeds from the
Public Offering. The Company had re-financed its fleet-related borrowings in
1999 with a six-year, $33.0 million, 10.56% fixed interest rate installment
loan. This repayment of debt resulted in the Company incurring a loss on the
early retirement of debt of $0.8 million.

In July 2002, the Company entered into a $35.0 million bank facility (the "Bank
Facility") consisting of a $25.0 million asset-based five-year revolving credit
facility and a $10.0 million accounts receivable-based working capital facility
with Regions Bank. The Company's ability to use the asset-based five-year
revolving credit facility was suspended in connection with our financing of the
Midnight Express and later terminated in April 2004 as part of the $19.0 million
increase to the construction finance facility discussed below. The Company
continues to have available the accounts receivable-based working capital
facility from Regions Bank. In December 2003, the accounts receivable-based
working capital facility was increased to a limit of $15.0 million. Amounts
outstanding under the accounts receivable-based working capital facility may not
exceed 85% of eligible trade accounts receivable. The Company had $7.2 million
outstanding under the $15.0 million accounts receivable-based working capital
facility as of December 31, 2003. In addition, the Company issued a $1.5 million
standby letter of credit as security for the charter payments due under the
charter agreement for the Midnight Hunter against the accounts receivable-based
working capital facility. In July 2003, this letter of credit was drawn by Cable
Shipping, Inc., the owners of the Midnight Hunter. The Company recorded the $1.5
million as a liability in full on the balance sheet during the second quarter of
2003. The Company had an available borrowing capacity of up to an additional
$4.0 million under the $15.0 million accounts receivable-based working capital
facility based upon eligible receivables at December 31, 2003. The $15.0 million
accounts receivable-based working capital facility matures on July 1, 2004 and
is renewable on an annual basis.

In April 2003, the Company finalized a credit line maturing June 30, 2004 to
finance the conversion of the Midnight Express (the "Finance Facility"). Amounts
outstanding under the credit line will convert into a three-year term loan
facility upon completion of the conversion of the Midnight Express. The Finance
Facility commitment is equally provided by Regions Bank and Export Development
Canada (EDC) ($30.0 million participation by each). As part of the terms and
conditions of the Finance Facility, Regions Bank suspended the $25.0 million
asset-based five-year revolving credit facility discussed above. In addition,
the $2.7 million standby letter of credit as security for payments related to a
crane to be constructed as part of the Midnight Express conversion was
transferred from the Bank Facility to the Finance Facility. The $2.7 million
standby letter of credit was drawn upon during the third quarter of 2003.

In April 2004, the Company increased the credit line from Regions Bank and EDC
by $19.0 million to $79.0 million ($39.5 million participation by each) and
amended the maturity to October 31, 2004. The amounts outstanding under the
credit line


                                      -58-
<PAGE>
will convert into two separate loans at the earlier of the facility's maturity
date or completion of the conversion of the Midnight Express. The first loan
represents the original $60.0 million borrowing and will convert to a three-year
term loan facility. The second loan is for the additional $19.0 million and will
convert to a twenty-month term loan facility maturing on June 30, 2006. In
addition, as part of the increase to the credit facility, the $25.0 million
asset-based five-year revolving credit facility was cancelled as discussed
above. Regions Bank and EDC also have the right to the first $10.0 million of
any equity offering, to the proceeds from the sale of any of the mortgaged
vessels (see discussion below) and to the interest rate buy-down expected from
Industry Canada upon conversion of the credit line to term status later in 2004.

The interest rate for the $60.0 million portion of the construction financing is
LIBOR plus a spread of 3.25% to 3.50% based upon the consolidated leverage ratio
of the Company (4.38% at December 31, 2003). The interest rate for the $19.0
million portion of the construction financing is LIBOR plus 4.00%. In addition,
the Company was charged a 1% origination fee ($190,000) by Regions Bank and EDC
for the addition to the credit line and the interest rate on the original $60.0
million financing increased to LIBOR plus 4.00%. The Company is providing
collateral in the form of the Midnight Express as well as a first preferred ship
mortgage on the Midnight Fox, Midnight Star, Midnight Dancer, Midnight Carrier,
Midnight Brave and Midnight Rider. The Company has to adhere to various
conditions including maintaining a tangible net worth of at least $60.0 million,
a minimum debt service coverage ratio of at least 1.20 to 1, a consolidated
leverage ratio of no more than 2.00 to 1 and a consolidated current ratio
(defined below) of 1.30 to 1 (see below for details of amendments). The Company
is not allowed to incur additional debt over $8.0 million without consent from
Regions Bank. The Company had $45.6 million outstanding under the $60.0 million
Finance Facility as of December 31, 2003 and capitalized $1.7 million of 2003
interest costs in relation to the conversion of the Midnight Express. The
additional $19.0 million was not available until April 2004, and the funding of
the additional $19.0 million is subject to, among other things, (1) the
completion of certain customary documentation submission requirements, (2) that
no events of default shall have occurred and be continuing, and (3) no material
adverse change in the properties, assets, liabilities, business, operations,
prospects, income or condition (financial or otherwise) of the Company and its
subsidiaries taken as a whole shall have occurred since the effective date
(April 8, 2004) and be continuing.

Upon achievement of certain construction completion milestones, but no later
than October 31, 2004, the $79.0 million Finance Facility will convert to term
status. The $60.0 million term loan facility would then have a three-year term
with a 10-year amortization payment schedule consisting of semi-annual payments
(beginning in the first half of 2005) with a balloon payment at the end of the
three-year term. The interest rate for this facility is 3.25% over LIBOR. The
$19.0 million term loan facility would then have a twenty-month term with a $6.0
million principal payment due on June 30, 2006, a $6.0 million principal payment
due on December 30, 2005 and the remaining $7.0 million principal payment due on
June 30, 2006. Interest would be payable on a monthly basis based on a rate of
LIBOR plus 4.00%. Regions Bank and EDC will require the Company to maintain the
same collateral and covenants as included in the construction financing depicted
above.

In December 2002, the Company entered into a purchase agreement with Global
Marine Systems Limited (Global Marine) for the Midnight Wrangler at a cost of
approximately $10.8 million. The Company took delivery of the vessel in March
2003. The purchase of the vessel was financed by Global Marine over a five-year
period with monthly payments, including 7% per annum interest, of approximately
$0.2 million per month plus a $1.0 million payment at the purchase date in March
2003 and another $1.0 million payment at the end of the five-year period.

In March 2003, the Company finalized a $9.25 million, seven-year term loan with
General Electric Commercial Equipment Financing (GE Commercial). The loan was
structured so that the Company received $8.0 million immediately and GE
Commercial retained $1.25 million as a security deposit. The interest rate on
the term loan is the 30-day commercial paper rate plus 2.03% and includes
prepayment penalties of 2% for the first twelve months, 1% for the second twelve
months and 0% thereafter. The term loan is structured to have monthly payments
over seven years. The loan agreement contains the same financial covenants as
the Bank Facility and Finance Facility, as amended, discussed above. The
collateral for the loan is the Midnight Eagle and the security deposit described
above. The Company utilized the proceeds from the loan to fund the improvements
to the Midnight Wrangler and a portion of the Midnight Express conversion costs.

In December 2003, the Company refinanced the debt used to acquire the Midnight
Wrangler with General Electric Capital Corporation (GE Capital) by entering into
a secured term loan in the principal amount of $15.0 million. The secured term
loan is structured to have quarterly payments over seven years. The interest
rate on the term loan is 4.25% over LIBOR and the terms contained an origination
discount of 1.50%. The loan agreement contains various


                                      -59-
<PAGE>
covenants beginning on March 31, 2005, including a minimum EBITDA (as defined)
of $18.5 million, a minimum fixed charge ratio (as defined) of 1.05 to 1, and a
maximum leverage ratio (as defined) of 5.25 to 1 for the financial quarters
ended in the period from October 1, 2004 through September 30, 2005. These
maximum leverage ratios decline by 0.50 to 1 for each of the following four
years before reaching 3.25 to 1 that applies for the financial quarters ended
from October 1, 2008 and thereafter. The collateral for the loan is the Midnight
Wrangler, Midnight Runner and Midnight Gator. A final payment was made to Global
Marine in December 2003. This early termination of debt resulted in a gain to
the Company of $0.9 million that is recorded in the December 31, 2003 financial
statements.

As of December 31, 2003, the fair value of the Company's debt obligations
approximated carrying value.

The Company's debt consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                          2003          2002
                                                       ----------    ----------
<S>                                                    <C>           <C>
Finance Facility ....................................  $   45,639    $       --
Receivable line of credit ...........................       7,227         4,271
GE Commercial - Midnight Eagle term loan ............       8,404            --
GE Capital - Midnight Wrangler term loan ............      15,000            --
Other debt (Note 9) .................................          49            60
                                                       ----------    ----------
      Total debt ....................................      76,319         4,331
      Less current portion ..........................      56,262         4,285
                                                       ----------    ----------
      Total long-term debt ..........................  $   20,057    $       46
                                                       ==========    ==========
</TABLE>

As of December 31, 2003, the Company was not in compliance with the amended
consolidated current ratio covenant of 1.00 to 1 or the debt service coverage
ratio of 1.20 to 1 of the Bank Facility, the Finance Facility and the GE
Commercial term loan. The amended consolidated current ratio is calculated by
adding the GE Commercial term loan security deposit of $1.25 million to current
assets and excluding from current liabilities the current portion of the Finance
Facility. For the quarter ended June 30, 2003, the Company had received covenant
waivers from Regions Bank, EDC and GE Commercial for the non-compliance at that
time. In addition, the Company amended the consolidated current ratio financial
covenant so that the Company would have to meet a consolidated current ratio of
1.00 to 1 for the quarters ending September 30, 2003 and December 31, 2003. The
consolidated current ratio requirement was to return to 1.30 to 1 in the first
quarter of 2004. However, the Company did not meet the amended consolidated
current ratio covenant as of September 30, 2003 and received covenant waivers
from Regions Bank, EDC and GE Commercial for the non-compliance. In addition,
the Company amended the consolidated current ratio financial covenant again so
that the Company will have to meet a consolidated current ratio of 1.00 to 1 as
of December 31, 2003 and 1.10 to 1 as of March 31, 2004. The consolidated
current ratio requirement would return to 1.30 to 1 in the second quarter of
2004. However, as of December 31, 2003, the Company again failed to meet the
consolidated current ratio of 1.00 to 1 in addition to the debt service coverage
ratio of 1.20 to 1 and has obtained waivers from Regions Bank, EDC and GE
Commercial for the non-compliance. Once again, the Company amended the
consolidated current ratio covenant to 0.70 to 1 for the four quarters of 2004
and then the consolidated current ratio covenant returns to 1.00 to 1 as of
March 31, 2005. These measures have enhanced the Company's ability to achieve
compliance; however, there can be no assurance that compliance will be
maintained. If compliance is not maintained, all credit agreements could be
declared to be in default and all amounts outstanding, including the $20.0
million of debt associated with the Midnight Eagle and Midnight Wrangler
facilities, currently classified as long-term could be demanded for payment and
creditors would have the right to seize the applicable collateral. The Company's
obligations under its credit agreements are secured by substantially all of the
Company's assets. Any defaults under the credit agreements would adversely
impact the Company's ability to sustain its operations in the normal course and
have a material effect on its financial condition and results of operations.

Aggregate annual maturities of all debt instruments for the next five years and
thereafter are as follows:

                2004              $56,262
                2005                3,406
                2006                3,448
                2007                3,488
                2008                3,521
                Thereafter          6,194

8.    INCOME TAXES:

In connection with the Public Offering, the Company became subject to corporate
level taxation and recorded a $2.6 million charge based upon cumulative book and
tax basis differences at the date of change in taxpayer status. The


                                      -60-
<PAGE>
Company recorded a $2.9 million benefit (a 24% effective tax rate) attributable
to operating losses for the year ended December 31, 2003, a $0.2 million
provision (a 35% effective tax rate) attributable to operating earnings for the
year ended December 31, 2002 and a $0.6 million provision (a 35% effective tax
rate) attributable to operating earnings after the Public Offering for the
period ended December 31, 2001. From 1997 until the Public Offering the Company
had not been subject to income taxes. The $2.9 million benefit recorded for the
year ended December 31, 2003 is net of a $1.3 million income tax valuation
allowance to eliminate the Company's net deferred tax asset position.

The provision for income taxes reflected in the statement of operations
consisted of the following for the years ended December 31, 2003, 2002 and 2001
(in thousands):

<TABLE>
<CAPTION>
                                                   YEARS ENDED DECEMBER 31,
                                                 2003        2002        2001
                                               --------    --------    --------
<S>                                            <C>         <C>         <C>
Current tax benefit .........................  $     --    $     --    $    808
Deferred tax benefit (expense) ..............     2,923        (213)     (3,973)
                                               --------    --------    --------
                                               $  2,923    $   (213)   $ (3,165)
                                               ========    ========    ========
</TABLE>

Reconciliations of the differences between income taxes from operations computed
at the federal statutory tax rate and income taxes recorded follow (in
thousands):

<TABLE>
<CAPTION>
                                                                                    YEARS ENDED DECEMBER 31,
                                                                                  2003        2002        2001
                                                                                --------    --------    --------
<S>                                                                             <C>         <C>         <C>
Income tax benefit (expense) computed at the federal statutory tax rate ......  $  4,252    $   (207)   $   (881)
   Increase attributable to:
    Non-taxable income due to tax status .....................................        --          --         292
    Impact of cumulative differences in book and tax basis (Note 2) ..........        --          --      (2,608)
    State taxes and other ....................................................        --          (6)         32
    Deferred tax asset valuation allowance ...................................    (1,329)         --          --
                                                                                --------    --------    --------
Income tax benefit (expense) .................................................  $  2,923    $   (213)   $ (3,165)
                                                                                ========    ========    ========
</TABLE>

The difference in the effective tax rate and statutory tax rate for 2003 is due
to the valuation allowance of $1.3 million recorded to fully offset the net
deferred tax asset during the fourth quarter of 2003. SFAS 109 provides for the
weighing of positive and negative evidence in determining whether it is more
likely than not that a deferred tax asset is recoverable. The Company has
incurred losses in 2001 and 2003 and has losses on an aggregate basis for the
three-year period ended December 31, 2003. Deferred income tax assets are
reduced by a valuation allowance when it is more likely than not that some
portion or all of the deferred income tax assets will not be realized. Despite
management projections of future income, relevant accounting guidance suggests
that a recent history of cumulative losses constitutes significant negative
evidence, and that future expectations about income are overshadowed by such
recent losses.

The components of the Company's deferred taxes at December 31, 2003 and 2002
follow (in thousands):

<TABLE>
<CAPTION>
                                                           YEAR ENDED               YEAR ENDED
                                                       DECEMBER 31, 2003        DECEMBER 31, 2002
                                                                   LONG-                     LONG-
                                                      CURRENT      TERM        CURRENT       TERM
                                                      --------    --------     --------    --------
<S>                                                   <C>         <C>          <C>         <C>
Deferred tax assets:
  Allowance for doubtful accounts ..................  $    692    $     --     $    428    $     --
  Other accruals ...................................       316          --          357          --
  Tax loss carryforward ............................        --      10,655           --       3,762
                                                      --------    --------     --------    --------
Total deferred tax assets ..........................  $  1,008    $ 10,655     $    785    $  3,762
                                                      --------    --------     --------    --------

Deferred tax liabilities:
  Property, plant and equipment, and other .........  $     --    $ (9,127)    $     --    $ (5,407)
</TABLE>


                                      -61-
<PAGE>
<TABLE>
<S>                                                   <C>         <C>          <C>         <C>
  Drydocking .......................................        --        (282)          --        (991)
  Prepaid expenses .................................      (925)         --       (1,072)         --
                                                      --------    --------     --------    --------
Total deferred tax liabilities .....................  $   (925)   $ (9,409)    $ (1,072)   $ (6,398)
                                                      --------    --------     --------    --------

Deferred tax asset valuation allowance .............       (83)     (1,246)          --          --
                                                      --------    --------     --------    --------
Net deferred tax liability .........................  $     --    $     --     $   (287)   $ (2,636)
                                                      ========    ========     ========    ========
</TABLE>

The Company has a net operating loss carryforward of $30.4 million at December
31, 2003, which begins to expire in 2021.

9.    RELATED PARTY TRANSACTIONS:

The Company purchases catering services for the galleys of some of its vessels
from a company partially owned by Mrs. Stockstill. Purchases for 2003, 2002 and
2001 totaled $1,695,000, $165,000 and $33,000, respectively. The Company also
purchased fuel from a company partially owned by Mrs. Stockstill. Purchases for
2003, 2002 and 2001 totaled $457,000, $234,000 and $53,000, respectively.
Amounts due to these related parties (included in accounts payable) were
approximately $657,000 and $103,000 as of December 31, 2003 and 2002,
respectively.

In December 2002, the Company entered into a five-year lease agreement for a
rental property for customer entertainment purposes from an investment holding
company wholly-owned by Mr. Stockstill. The annual lease obligation approximates
$51,000.

During 2002, the Company purchased a leisure fishing vessel for customer
entertainment purposes from an investment holding company wholly-owned
by Mr. Stockstill. The total cost of the vessel was approximately $0.1 million,
of which $41,000 was paid by the Company in cash during 2002 plus the Company
assumed debt of $60,000. The debt will be paid by the Company in monthly
installments over a five-year period and is classified as other debt on the
balance sheet (see Note 7).

10.   SIGNIFICANT CUSTOMERS:

Two customers represented approximately 30% of the Company's revenues for the
year ended December 31, 2003. No individual customer made up more than 10% of
the Company's revenues for the years ended December 31, 2002 or 2001.

11. COMMITMENTS AND CONTINGENCIES:

Employment Agreements - The Company had an employment agreement with an employee
and also granted in 1996 a ten-year option to this employee to purchase 395,000
shares of the Company's common stock with an exercise price of $0.51 per share.
In 1999, the Company entered into a termination agreement with this employee,
canceling the employment agreement and the options. The termination agreement
called for payments totaling $1.5 million. This amount was paid in full in 2001.

In 1998, the Company entered into an employment agreement with an employee and
also granted a ten-year option to this employee to purchase 77,900 shares of the
Company's common stock at an exercise price of $4.62 per share. An additional
"fair market value" grant of options to purchase 319,200 shares of the Company's
common stock was made to this employee in 1998, with an exercise price of $9.99
per share. The exercise prices of the respective options equaled or exceeded
management's estimate of the fair value of the Company's stock at the dates of
grant. In 2000, the Company entered into a termination agreement with this
employee, canceling the employment agreement and the options. The termination
agreement called for payments totaling approximately $0.4 million. The entire
balance was paid as of December 31, 2001.

The Company presently has employment agreements with three officers. One
employment agreement expires on July 30, 2004 and includes severance benefits
for early termination equal to twelve months salary for this individual as well
as a non-compete clause for a period of twelve months after termination. This
employment agreement automatically renews for successive one-year terms unless
terminated. The second employment agreement expires on September 22, 2005 and


                                      -62-
<PAGE>
includes severance benefits for early termination equal to six months salary for
this individual as well as a non-compete clause for a period of six months after
termination. This employment agreement automatically renews for successive
one-year terms unless terminated. The final employment agreement expires on
December 31, 2006 and includes severance benefits for early termination equal to
twelve months salary for this individual as well as a non-compete clause for a
period of twelve months after termination. The employment agreement includes
automatic increases in base salary on an annual basis. This employment agreement
automatically renews for successive one-month terms unless terminated.

Lease Commitments - The Company's obligations under operating lease commitments
as of December 31, 2003 totaled $4.2 million for 2004, $1.3 million for 2005,
$0.1 million for 2006, $0.1 million for 2007, none for 2008 and thereafter. The
majority of the obligation relates to the Company's charter of the Midnight
Arrow. The Company's charter of the Midnight Hunter is not included in the above
amounts as the charter was not entered into until January 2004. The Company's
operating lease commitments for the Midnight Hunter are $4.7 million for 2004
and $3.6 million for 2005.

The Company also leases real property in the normal course of business under
varying operating leases that generally provide for fixed monthly rentals. Rent
expense for the years ending December 31, 2003, 2002 and 2001 was $4.2 million,
$3.9 million and $3.3 million, respectively.

In early 2000, the Company commenced a five-year new-build charter for the
Midnight Arrow, a DP-2 deepwater subsea construction vessel. The long-term
charter is with Adams Offshore Ltd. and expires in March 2005, but can be
terminated on July 23, 2004 by paying $300,000, or on November 24, 2004 by
paying $100,000. The charter amount includes the marine crew, maintenance and
repairs, drydock costs and certain insurance coverages. Under the terms of the
charter, the Company has the exclusive option to purchase the vessel for $8.25
million or the ability to extend the charter for an additional two years at the
end of the charter period. This charter is being accounted for as an operating
lease.

In January 2004, the Company entered into a time charter for the Midnight
Hunter, a 340-foot DP-2 deepwater capable vessel. The time charter for the
Midnight Hunter is at a day rate of $14,500 per day and extends through
September 2, 2005, with provisions for extension or outright purchase. The
charter amount includes the marine crew, maintenance and repairs, drydock costs
and certain insurance coverages. The vessel was previously under charter by the
Company, but the Company cancelled the charter in January 2003 because the
vessel did not meet certain specifications as outlined in the charter agreement
which prevented the Company from performing some types of work, particularly
deepwater pipelay (see further discussion below). However, the Company has
re-chartered the vessel at a lower day rate and has altered its intentions for
use of the vessel. The Company intends to utilize the DP-2 vessel in a diving
support capacity, which will allow it to perform deepwater tie-ins with the
Company's 1,000-foot saturation system that has been installed on the vessel.

Other Commitments - The Company has executed contracts with several critical
equipment suppliers related to the conversion of the Midnight Express. In
December 2002, the Company entered into a contract with Davie Maritime, Inc. of
Quebec, Canada to complete the conversion of the Midnight Express at a contract
value of $25.3 million ($37.1 million inclusive of assigned critical equipment
supplier contracts) that became effective in April 2003. Due to the recent
settlement with Davie Maritime, Inc., the shipyard contract, inclusive of
assigned critical equipment supplier contracts, is now valued at $51.9 million
of which $6.5 million has come from approved change orders and $8.3 million from
an agreed increase in contract price. The remaining outstanding contracts for
the conversion of the Midnight Express, including the Davie Maritime, Inc.
contract described above, aggregate $82.7 million, of which $61.5 million had
been paid as of December 31, 2003. In the event the Company terminates these
contracts, the Company is required to pay certain of these suppliers' costs
incurred to date while other suppliers are entitled to the full value of the
contract, depending upon the terms of the relevant agreement. The Company
believes its present termination cost exposure on these contracts totals
approximately $21.1 million.

Contingencies - The Company has been named as a defendant in a stockholder class
action suit filed by purported stockholders regarding the Public Offering. This
lawsuit, Karl L. Kapps, et. al. v. Torch Offshore, Inc. et. al., No. 02-


                                      -63-
<PAGE>
00582, which seeks unspecified monetary damages, was filed on March 1, 2002 in
the United States District Court for the Eastern District of Louisiana. The
lawsuit was dismissed on December 19, 2002 for failure to state a claim upon
which relief could be granted. The plaintiffs have appealed to the United States
Court of Appeals for the Fifth Circuit. Oral arguments have been completed and
the Company is awaiting the decision of the Court. The Company believes the
allegations in this lawsuit are without merit and continues to vigorously defend
this lawsuit. Even so, an adverse outcome in this class action litigation could
have a material adverse effect on the Company's financial condition or results
of operations.

The Company was named as a defendant in a lawsuit (Bluffview Capital, LP v.
Torch Offshore, Inc., No. 2002-7662, filed in the 134th Judicial District Court,
Dallas County, Texas on August 26, 2002) brought by a former service provider.
The plaintiff was originally hired to assist the Company in obtaining financing,
among other services. The Company terminated the relationship and disputed the
plaintiff's interpretation of certain provisions regarding the services to be
provided and the calculation of fees allegedly earned. The case was settled in
October 2003 with no significant impact on the Company's results of operations.

In May 2002, the Company entered into an agreement with Cable Shipping, Inc. to
time charter a vessel, the G. Murray, under a three-year contract at a rate of
$18,500 per day. The time charter commenced in the third quarter of 2002 and the
vessel was renamed the Midnight Hunter. However, on January 24, 2003, the
Company terminated the time charter because of the vessel's failure to meet
certain specifications outlined in the charter agreement. In November 2003, a
London arbitrator issued a ruling against the Company's recission claim, finding
that the Company was not entitled to terminate the charter, but did rule in
favor of the Company on the warranty claim for breach of contract. An interim
award of $2.2 million was made in favor of Cable Shipping, Inc. The Company has
recorded the full amount of the interim award in its financial statements as of
December 31, 2003. The Company attempted to appeal the ruling, but on April 7,
2004 the appeal was denied. The escrowed award will now be released to Cable
Shipping, Inc. Each party will now make submissions as to quantum of damages for
the claim upon which it was successful and a further hearing will be held.
Additional amounts awarded to the parties will likely be netted in favor of
Cable Shipping, Inc. While an estimate of the net impact of the damages to be
awarded with respect to this matter is not currently quantifiable, it is
possible that future damages to be awarded to Cable Shipping, Inc. in this
matter could have a material adverse effect on the Company's financial condition
and/or results of operations.

In March 2003, the Company filed a lawsuit (Torch Offshore, Inc. v. Newfield
Exploration Company, No. 03-0735, filed in the United States District Court,
Eastern District of Louisiana on March 13, 2003) against Newfield Exploration
Company (Newfield) claiming damages of approximately $2.1 million related to
work completed for Newfield in the Gulf of Mexico at Grand Isle Block 103-A. The
lawsuit alleges that the Company did not receive all compensation to which it
was entitled pursuant to the contract. As of December 31, 2003, the Company has
written off the full amount of the claim. However, the Company intends to
continue to pursue this claim.

In July 2003, the Company filed a lawsuit (Torch Offshore, Inc. et al v. Stolt
Offshore, Inc., Algonquin Gas Transmission Company and Duke Energy, No. 03-1915,
in the United States District Court, Eastern District of Louisiana on July 3,
2003) against Stolt Offshore, Inc. (Stolt), and its customer, seeking recovery
of approximately $7.6 million related to work completed for Stolt in Boston,
Massachusetts. The Company worked as a subcontractor to Stolt, who was engaged
by Algonquin Gas Transmission Company to complete the Boston Hubline project, an
underwater pipeline crossing the Boston Harbor. The lawsuit alleged that the
Company did not receive all compensation to which the Company was entitled
pursuant to the subcontract the Company had with Stolt. Two other subcontractors
to Stolt joined with the Company and filed as plaintiffs in the lawsuit.
Additionally, the Company, along with two other subcontractors, filed a lawsuit
in Massachusetts (Civil Action No. 03-01585), which included a claim for breach
of contract as well as a claim to assert mechanics' liens against Algonquin's
easement located in Weymouth, Norfolk County, Massachusetts. In March 2004, the
Company reached a settlement with Stolt in the amount of $6.2 million and the
full amount of the difference between the claim and the final settlement (a loss
of approximately $1.4 million) is recorded in the financial statements as of
December 31, 2003. The lawsuits have been dismissed and the lien claims have
been released.

Because of the nature of its business, the Company is, from time to time,
involved in routine litigation or subject to


                                      -64-
<PAGE>
various other disputes or claims related to its business operations (other
miscellaneous legal matters). The Company has engaged legal counsel to assist in
defending all such legal matters, and management intends to vigorously defend
all claims. The Company does not believe, based on all available information,
that the outcome of these other miscellaneous legal matters will have a material
effect on its financial position or results of operations.

12.   STOCKHOLDERS' EQUITY:

Treasury Stock - In August 2001, the Company's Board of Directors approved the
repurchase of up to $5.0 million of the Company's outstanding common stock.
Purchases will be made on a discretionary basis in the open market or otherwise
over a period of time as determined by management subject to market conditions,
applicable legal requirements and other factors. As of December 31, 2003,
712,471 shares had been repurchased at a total cost of approximately $4.3
million.

Stock Option Plan - The Company's 2001 Long-Term Incentive Plan authorizes 3.0
million shares of the Company's common stock to be granted to employees,
directors and affiliates in the form of options, stock, phantom stock,
performance based stock or stock appreciation rights. As of December 31, 2003,
stock options covering 449,548 shares of common stock with a weighted average
price of $9.95 per share, and 44,687 shares of restricted stock, both vesting
generally over five years, were outstanding. Prior to the Public Offering grant,
only stock option grants associated with the Company's predecessor were
outstanding (see Note 11).

The following table shows the changes in options outstanding under the 2001
Long-Term Incentive Plan for the years ended December 31, 2003, 2002 and 2001:

<TABLE>
<CAPTION>
                                               NUMBER OF        WEIGHTED AVERAGE
                                                OPTIONS          EXERCISE PRICE
                                               ---------        ----------------
<S>                                            <C>              <C>
  Granted ...................................   255,943             $ 16.00
  Cancelled .................................    32,188               16.00
  Exercised .................................        --                  --
                                                -------
Outstanding at December 31, 2001
  (23,906 exercisable) ......................   223,755               16.00
  Granted ...................................   233,000                8.50
  Cancelled .................................    87,313               13.76
  Exercised .................................        --                  --
                                                -------
Outstanding at December 31, 2002
  (42,688 exercisable) ......................   369,442               11.80
  Granted ...................................   125,600                5.38
  Cancelled .................................    45,494               12.38
  Exercised .................................        --                  --
                                                -------
Outstanding at December 31, 2003
  (100,859 exercisable) .....................   449,548             $  9.95
                                                =======
</TABLE>

The following table summarizes information on stock options outstanding and
exercisable as of December 31, 2003, pursuant to the 2001 Incentive Plan:

<TABLE>
<CAPTION>
                                      OPTIONS OUTSTANDING                                OPTIONS EXERCISABLE
                     -------------------------------------------------------    -----------------------------------
                                           WEIGHTED
                                           AVERAGE               WEIGHTED
   RANGE OF            SHARES              REMAINING             AVERAGE          SHARES           WEIGHTED AVERAGE
EXERCISE PRICES      OUTSTANDING        CONTRACTUAL LIFE      EXERCISE PRICE    EXERCISABLE         EXERCISE PRICE
---------------      -----------        ----------------      --------------    -----------         --------------
<S>                  <C>                <C>                   <C>               <C>                <C>
 $5.10 - $6.57         136,600             9.3 years              $ 5.37            5,400               $5.46
     $8.77             175,600             8.4 years              $ 8.77           37,520               $ 8.77
    $16.00             137,348             7.4 years              $16.00           57,939               $16.00
</TABLE>

13.   EMPLOYEE BENEFIT PLAN:

The Company has a 401(k) defined contribution plan whereby eligible employees
are allowed to contribute on a tax deferred basis a portion of their
compensation (subject to certain limitations) for investment within the plan.
Earnings from the plan accumulate to the benefit of the employees on a
tax-deferred basis. The Company matches employee contributions up to 6% of the
respective employees' compensation. Plan participants vest in the Company's
matching


                                      -65-
<PAGE>
contributions over a five-year period. The amount contributed to the plan by the
Company totaled $406,000 for 2003, $340,000 for 2002 and $318,000 for 2001.

14.   CAPITAL RESOURCES, LIQUIDITY AND SUBSEQUENT EVENTS

The Company faces significant financial liquidity issues in 2004 as a result of
adverse business conditions in the industry, significant costs of expanding the
Company's fleet of DP-2 vessels, the recent arbitration ruling in the Midnight
Hunter case, and other events with a direct impact on the Company's earnings.
The accompanying financial statements reflect significant net losses in 2003 of
$9.2 million and a working capital deficit of $55.0 million as of December 31,
2003, which includes the $45.6 million amount due under the Company's Finance
Facility to build the Midnight Express.

Subsequent to December 31, 2003, management has taken steps to address the
Company's requirements for financial liquidity and has developed a financial
plan that it believes will provide the Company sufficient financial resources to
conduct its business plans during 2004. This business plan involves completing
the conversion of the Midnight Express within current financial constraints,
raising additional capital to fund working capital and debt obligation
requirements, potentially disposing of certain vessels and entering into an
agreement(s) for utilization of the Midnight Express upon completion of its sea
trials. Success in this business plan is essential for the Company to continue
its operations in the future and to meet both its near-term and long-term
financial obligations.

The steps taken by the Company subsequent to December 31, 2003 and management's
plan to address its financial liquidity requirements are described below.

CONVERSION OF THE MIDNIGHT EXPRESS

In April 2004, the Company entered into an agreement with Regions Bank and EDC
for an additional $19.0 million on the Finance Facility to complete the
conversion of the Midnight Express. In addition, they have agreed to extend the
time frame of the construction period of the Finance Facility from June 30, 2004
to October 31, 2004 at which point the construction period financing will
convert to term status. Regions Bank and EDC have also amended certain covenant
obligations that the Company must meet in 2004. The consolidated current ratio
covenant is now at 0.70 to 1 as of March 31, 2004 and through December 31, 2004.

The Company has also come to a settlement with Davie Maritime, Inc., the
shipyard that is completing the conversion of the Midnight Express in Quebec,
Canada, in the amount of $8.3 million. This settlement covers all of the claims
made by Davie Maritime, Inc. against the Company. Since the initial contract
signing, the shipyard contract has grown from $37.1 million to $51.9 million of
which $6.5 million has been approved change orders and $8.3 million has resulted
from an increase in price. The agreement also calls for a final delivery date of
the vessel of May 21, 2004. Should Davie Maritime, Inc. not deliver the vessel
on May 21, 2004, or a later date which could arise due to permissible delays,
Davie Maritime, Inc. will incur liquidated damages following a seven-day grace
period ranging from $25,000 to $50,000 per day based on the number of days
delinquent in delivery of the vessel not to exceed 10% of the total value of the
contract.

After the Midnight Express leaves the Davie Maritime, Inc. shipyard, the Company
expects an additional 90 days before the vessel is ready to enter the Company's
active fleet. During this 90-day period, the Company will install the patented
pipelay system at the manufacturer's operation in Amsterdam. In addition, the
Company will install the 500-ton crane. Further outfitting and installation of
the pipe handling system will occur in the Gulf of Mexico, as will the final sea
trials for the vessel. The Company expects the vessel to enter the active fleet
in the latter portion of the third quarter of 2004.

UTILIZATION OF THE MIDNIGHT EXPRESS

In August 2002, we developed a deepwater group to initiate our entrance into the
deepwater market using the Midnight Hunter and Midnight Wrangler. The group has
completed various pipelay projects and subsea construction projects. This group
has also been dedicated to the marketing of the Midnight Express. To date, we
have submitted the Midnight Express to multiple customers on various types of
bids. We are in discussions with several customers to


                                      -66-
<PAGE>
perform work in the last quarter of 2004 in the Gulf of Mexico as well as
international work in 2005. There is no assurance that such contracts or
charters will be awarded to the Company.

ADDITIONAL CAPITAL

In March 2004, the Company settled with Stolt Offshore, Inc. (Stolt) in the
amount of $6.2 million for recovery of work the Company completed for Stolt in
relation to the Boston Hubline project in the first half of 2003. The Company
collected these funds in March 2004 and used them for general operating purposes
and to help meet the Company's debt obligations in 2004.

The Company is also seeking other means of raising funds, including the private
and public equity markets. The Company's ability to raise additional capital
will depend on the status of capital and industry markets. Raising additional
capital during 2004 is a requirement for the Company to continue to conduct
operations and meet debt obligations. Failure to do so will have a significant
adverse impact on the Company's liquidity. The amended Finance Facility
specifies the Company is to raise approximately $10.0 million by June 30, 2005
and requires that the first $10.0 million of proceeds associated with such an
offering be used to reduce amounts outstanding under the Finance Facility.

DISPOSAL OF VESSELS

In connection with the Company's efforts to raise funds, the Company is also
pursuing the sale of certain vessels into foreign markets either through
charters to operators in these foreign markets or the outright sale of these
vessels. The Company has had discussions with various parties about such a
transaction; however, no final agreements have been tendered. There is no
assurance that the Company will reach such an agreement and complete a
transaction during 2004. The Finance Facility specifies that any proceeds from
the sale of these vessels is pledged to them, including the Midnight Carrier,
Midnight Star, Midnight Dancer, Midnight Fox, Midnight Brave and Midnight Rider.
The proceeds from such a sale are to be used to repay the amounts due under the
Finance Facility.

                        --------------------------------

Consummation of the above transactions is expected to occur in 2004. Management
believes that these transactions would provide sufficient funding for the
Company's debt and working capital requirements for 2004. Because these
transactions are not complete, they involve inherent uncertainties, including
uncertainties beyond the Company's control. These conditions raise substantial
doubt about the Company's ability to continue as a going concern.

Management believes that completion of the transactions described above will
provide sufficient financial resources to conduct the Company's business plans
during 2004. However, there are no assurances that the Company will successfully
accomplish the objectives of such plans.

15.   QUARTERLY FINANCIAL DATA (UNAUDITED):

Following is a summary of consolidated interim financial results:

<TABLE>
<CAPTION>
                                                                FISCAL YEAR 2003 QUARTERS
(in thousands, except per share data)                    FIRST      SECOND       THIRD      FOURTH
<S>                                                    <C>         <C>         <C>         <C>
Revenues ............................................  $17,029     $13,876     $15,262     $19,390
Operating Income (Loss) .............................      102(1)   (1,794)(2)  (2,106)(3)  (9,237)(4)
Net Income (Loss) ...................................       67      (1,166)     (1,369)     (6,758)(5)
Basic Earnings (Loss) Per Share .....................     0.01       (0.09)      (0.11)      (0.54)
Diluted Earnings (Loss) Per Share ...................     0.01       (0.09)      (0.11)      (0.54)
</TABLE>


                                      -67-
<PAGE>
<TABLE>
<CAPTION>
                                                               FISCAL YEAR 2002 QUARTERS
(in thousands, except per share data)                    FIRST     SECOND      THIRD     FOURTH
<S>                                                    <C>        <C>        <C>        <C>
Revenues                                               $16,725    $12,910    $13,833    $24,522
Operating Income (Loss)                                    799       (679)      (477)       733(6)
Net Income (Loss)                                          563       (414)      (298)       544
Basic Earnings (Loss) Per Share                           0.04      (0.03)     (0.02)      0.04
Diluted Earnings (Loss) Per Share                         0.04      (0.03)     (0.02)      0.04
</TABLE>

(1)  Includes approximately $0.7 million related to the termination of the
     Midnight Hunter charter.

(2)  Includes approximately $0.7 million related to the termination of the
     Midnight Hunter charter.

(3)  Includes approximately $0.7 million related to the termination of the
     Midnight Hunter charter.

(4)  Includes approximately $1.6 million related to the asset impairment charge
     on the Midnight Carrier and approximately $2.6 million of charges relating
     to claims and settlements for work completed in prior periods.

(5)  Includes a pre-tax gain of approximately $0.9 million related to the early
     retirement of debt and a $1.3 million deferred tax asset valuation
     allowance.

(6)  Includes approximately $0.9 million related to the termination of the
     Midnight Hunter charter.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. As of the end of the period
covered by this report, our Chief Executive Officer and Chief Financial Officer,
with the participation of management, have evaluated the effectiveness of the
design and operation of our disclosure controls and procedures. Based on their
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures have been designed and are
functioning effectively in alerting them in a timely manner to material
information relating to Torch Offshore, Inc. required to be disclosed in our
periodic Securities and Exchange Commission filings under the Securities
Exchange Act of 1934.

Changes in Internal Controls. There were no significant changes in our internal
controls or in other factors that could significantly affect these internal
controls subsequent to the date of their most recent evaluation, including any
corrective actions taken with regard to significant deficiencies and material
weaknesses.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is set forth under the captions "Election
of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in
the Company's definitive Proxy Statement (the "2004 Proxy Statement") for its
annual meeting of stockholders to be held on May 20, 2004, which sections are
incorporated herein by reference.

Pursuant to Item 401(b) of Regulation S-K, the information required by this item
with respect to executive officers of the Company is set forth in Part I of this
report.

We have adopted the Torch Offshore, Inc. Code of Business Conduct and Ethics
(the "Code"), a code of ethics that applies to all employees, including our
Chief Executive Officer, Chief Financial Officer and Corporate Controller. The
Code is being filed as Exhibit 14 in this Annual Report on Form 10-K. Any
substantive amendments to the Code, or any waivers granted for any directors or
our Chief Executive Officer, Chief Financial Officer or Corporate Controller
will be disclosed in a report on Form 8-K.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is set forth in the sections entitled
"Election of Directors - Director Compensation" and "Executive Compensation" in
the 2004 Proxy Statement, which sections are incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS


                                      -68-
<PAGE>
Except as set forth below, the information required by this item is set forth in
the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the 2004 Proxy Statement, which section is incorporated herein by
reference.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table provides information as of December 31, 2003, with respect
to equity compensation plans under which our common stock is authorized for
issuance.

<TABLE>
<CAPTION>
                                                                                            NUMBER OF SECURITIES
                                                                                            REMAINING AVAILABLE
                                                                                            FOR FUTURE ISSUANCE
                                              NUMBER OF SECURITIES    WEIGHTED AVERAGE          UNDER EQUITY
                                               TO BE ISSUED UPON      EXERCISE PRICE OF      COMPENSATION PLANS
                                                  EXERCISE OF            OUTSTANDING       (EXCLUDING SECURITIES
                                              OUTSTANDING OPTIONS,    OPTIONS, WARRANTS      REFLECTED IN FIRST
                 PLAN CATEGORY                WARRANTS AND RIGHTS        AND RIGHTS                COLUMN)
                 -------------                -------------------        ----------                -------
<S>                                           <C>                     <C>                  <C>
Equity Compensation Plans Approved by
  Stockholders .............................        449,548                 $9.95                 2,487,637
Equity Compensation Plans Not Approved
  by Stockholders ..........................             --                    --                        --
                                                    -------                                       ---------
Total at December 31, 2002 .................        449,548                 $9.95                 2,487,637
</TABLE>

See Note 13 to our financial statements for further information regarding the
significant features of the above plan.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is set forth in the section entitled
"Election of Directors - Certain Transactions" in the 2004 Proxy Statement,
which section is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is set forth in the section entitled
"Audit Fees" in the 2004 Proxy Statement, which section is incorporated herein
by reference.

                                    PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A)   1.    FINANCIAL STATEMENTS:

<TABLE>
<S>                                                                                                                         <C>
      Reports of Independent Auditors.....................................................................................  45
      Consolidated Balance Sheets as of December 31, 2003 and 2002........................................................  47
      Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002 and 2001..........................  48
      Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2003, 2002 and 2001.....  49
      Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001..........................  50
      Notes to Consolidated Financial Statements..........................................................................  51
</TABLE>

      2.    FINANCIAL STATEMENT SCHEDULES:


                                      -69-
<PAGE>
      All financial statement schedules are omitted because the information is
not required or because the information required is in the financial statements
or notes thereto.

      4(A). EXHIBITS:

      The following exhibits are filed herewith unless otherwise indicated:

      *3.1    --  Certificate of Incorporation (Incorporated by reference to
                  Exhibit 3.1 to the Company's Registration Statement on Form
                  S-1 (Registration No. 333-54120)).

      *3.2    --  Bylaws (Incorporated by reference to Exhibit 3.2 to the
                  Company's Registration Statement on Form S-1 (Registration No.
                  333-54120)).

      *3.3    --  Certificate of Amendment to Certificate of Incorporation
                  (Incorporated by reference to Exhibit 3.3 to the Company's
                  Registration Statement on Form S-1 (Registration No.
                  333-54120)).

      *4.1    --  Form of specimen common stock certificate (Incorporated by
                  reference to Exhibit 4.1 to the Company's Registration
                  Statement on Form S-1 (Registration No. 333-54120)).

      *4.2    --  Registration Rights Agreement, dated June 6, 2001, among the
                  Company, Friends of Lime Rock LP and Riverside Investments LLC
                  (Incorporated by reference to Exhibit 4.1 to the Company's
                  Current Report on Form 8-K filed June 12, 2001 (SEC File No.
                  000-32855)).

      *10.1   --  Contribution Agreement dated January 15, 2001 among Torch,
                  Inc., Friends of Lime Rock LP, Riverside Investments LLC and
                  Torch Offshore, Inc. (Incorporated by reference to Exhibit
                  10.1 to the Company's Registration Statement on Form S-1
                  (Registration No. 333-54120)).

      *10.2   --  Torch Offshore, Inc. 2001 Long-Term Incentive Plan
                  (Incorporated by reference to Exhibit 10.2 to the Company's
                  Registration Statement on Form S-1 (Registration No.
                  333-54120)).

      *10.8   --  Form of Indemnification Agreement (Incorporated by reference
                  to Exhibit 10.9 to the Company's Registration Statement on
                  Form S-1 (Registration No. 333-54120)).

      *10.14  --  "Supplytime 89" - dated 31 May 2002 with respect to "G.
                  Murray" TBN "Midnight Hunter" (Incorporated by reference to
                  Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
                  for the period ended June 30, 2002).

      *10.15  --  Amendment No. 1 Dated 25 June 2002 to "Supplytime 89" - dated
                  31 May 2002 with respect to "G. Murray" TBN "Midnight Hunter"
                  (Incorporated by reference to Exhibit 10.2 to the Company's
                  Quarterly Report on Form 10-Q for the period ended June 30,
                  2002).

      *10.16 --   Loan Agreement By and Between Regions Bank and Torch Offshore,
                  Inc. (Incorporated by reference to Exhibit 10.1 to the
                  Company's Quarterly Report on Form 10-Q for the period ended
                  September 30, 2002).

      *10.17 --   Memorandum of Agreement between Global Marine Systems Limited
                  of East Saxon House and Torch Offshore Inc. dated 27th
                  November, 2002 (Incorporated by reference to Exhibit 99.2 to
                  the Company's Current Report on Form 8-K filed December 23,
                  2002).

      *10.18 --   Credit Facility Agreement between (1) Torch Offshore Inc. (2)
                  Global Marine Systems Limited Relating to the Vessel "Wave
                  Alert" to be Renamed "Midnight Wrangler" (Incorporated by
                  reference to Exhibit 99.3 to the Company's Current Report on
                  Form 8-K filed December 23, 2002).

      10.19  --   Assignment of Insurances between (1) Torch Offshore Inc., as
                  Assignor, and (2) Global Marine Systems Limited, as Assignee
                  (Incorporated by reference to Exhibit 99.4 to the Company's
                  Current Report on Form 8-K filed December 23, 2002).

      10.20  --   First Preferred Vanuatu Ship Mortgage on m.v. "Midnight
                  Wrangler" formerly "Wave Alert" between (1) Torch Offshore
                  Inc., as Owner, and (2) Global Marine Systems Limited, as
                  Mortgagee (Incorporated by reference to Exhibit 99.5 to the
                  Company's Current Report on Form 8-K filed December 23, 2002).


                                      -70-
<PAGE>
      *10.21 --   Conversion Contract between Davie Maritime, Inc., as Builder,
                  and Torch Express L.L.C., as Owner, dated December 3, 2002
                  (Incorporated by reference to Exhibit 10.21 to the Company's
                  Form 10-K for the year ended December 31, 2003).

      *10.22 --   Loan Agreement by and among General Electric Capital
                  Corporation ("Lender"), a Delaware corporation, Torch
                  Offshore, L.L.C. ("Borrower"), a Delaware limited liability
                  company, and Torch Offshore, Inc., a Delaware corporation
                  ("Guarantor") and Promissory Note (Incorporated by reference
                  to Exhibit 10.22 to the Company's Form 10-K for the year ended
                  December 31, 2003).

      *10.23 --   Continuing Guaranty by Torch Offshore, Inc., a Delaware
                  Corporation, in favor of General Electric Capital Corporation,
                  a Delaware Corporation, Guarantying the Indebtedness of Torch
                  Offshore, L.L.C. (Incorporated by reference to Exhibit 10.23
                  to the Company's Form 10-K for the year ended December 31,
                  2003).

      *10.24 --   First Preferred Ship Mortgage Granted by Torch Offshore,
                  L.L.C., Owner, in Favor of General Electric Capital
                  Corporation, Mortgagee, on the United States Flag Vessel Named
                  Midnight Eagle (Incorporated by reference to Exhibit 10.24 to
                  the Company's Form 10-K for the year ended December 31, 2003).

      *10.25 --   Employment Agreement between Torch Offshore, Inc. and Robert
                  E. Fulton dated July 30, 2002 (Incorporated by reference to
                  Exhibit 10.25 to the Company's Form 10-K for the year ended
                  December 31, 2003).

      *10.27 --   First Amendment to the Conversion Contract dated December 3,
                  2002 between Davie Maritime, Inc. as Builder, and Torch
                  Express L.L.C., as Owner (Incorporated by reference to Exhibit
                  99.2 to the Company's Current Report on Form 8-K filed April
                  22, 2003).

      *10.28 --   Second Amendment to the Conversion Contract dated December 3,
                  2002 between Davie Maritime, Inc. as Builder, and Torch
                  Express L.L.C., as Owner (Incorporated by reference to Exhibit
                  99.3 to the Company's Current Report on Form 8-K filed April
                  22, 2003).

      *10.29 --   Third Amendment to the Conversion Contract dated December 3,
                  2002 between Davie Maritime, Inc. as Builder, and Torch
                  Express L.L.C., as Owner (Incorporated by reference to Exhibit
                  99.4 to the Company's Current Report on Form 8-K filed April
                  22, 2003).

      *10.30 --   Fourth Amendment to the Conversion Contract dated December 3,
                  2002 between Davie Maritime, Inc. as Builder, and Torch
                  Express L.L.C., as Owner (Incorporated by reference to Exhibit
                  99.5 to the Company's Current Report on Form 8-K filed April
                  22, 2003).

      *10.31 --   Fifth Amendment to the Conversion Contract made as of December
                  3, 2002 between Davie Maritime, Inc. a company organized and
                  existing under the laws of Canada, and Torch Express L.L.C., a
                  company organized and existing under the laws of Louisiana
                  (Incorporated by reference to Exhibit 99.6 to the Company's
                  Current Report on Form 8-K filed April 22, 2003).

      *10.32 --   Parent Company Guarantee to Davie Maritime, Inc. from Torch
                  Offshore, Inc. (Incorporated by reference to Exhibit 99.7 to
                  the Company's Current Report on Form 8-K filed April 22,
                  2003).

      *10.33 --   Credit Agreement, Effective April 23, 2002, By and Among Torch
                  Offshore, Inc. as Borrower, Regions Bank, as Agent, and
                  Regions Bank and Export Development Canada, as Lenders
                  (Incorporated by reference to Exhibit 99.2 to the Company's
                  Current Report on Form 8-K filed May 12, 2003).

      *10.34 --   Waiver and Second Amendment to Amended and Restated Loan
                  Agreement among Torch Offshore, Inc. and Regions Bank
                  (Incorporated by reference to Exhibit 10.1 to the Company's
                  Quarterly Report on Form 10-Q for the period ended June 30,
                  2003).

      *10.35 --   Waiver and Second Amendment to Credit Agreement among Torch
                  Offshore, Inc., Regions Bank and Export Development Canada
                  (Incorporated by reference to Exhibit 10.2 to the Company's
                  Quarterly Report on Form 10-Q for the period ended June 30,
                  2003).

      *10.36 --   Waiver and Amendment No. 1 to Loan Agreement dated March 21,
                  2003 between General Electric Capital Corporation, Torch
                  Offshore, L.L.C. and Torch Offshore, Inc. (Incorporated


                                      -71-
<PAGE>
                  by reference to Exhibit 10.3 to the Company's Quarterly Report
                  on Form 10-Q for the period ended June 30, 2003).

      *10.37 --   Waiver and Third Amendment to Amended and Restated Loan
                  Agreement among Torch Offshore, Inc. and Regions Bank
                  (Incorporated by reference to Exhibit 10.1 to the Company's
                  Quarterly Report on Form 10-Q for the period ended September
                  30, 2003).

      *10.38 --   Waiver and Third Amendment to Credit Agreement among Torch
                  Offshore, Inc., Regions Bank and Export Development Canada
                  (Incorporated by reference to Exhibit 10.2 to the Company's
                  Quarterly Report on Form 10-Q for the period ended September
                  30, 2003).

      *10.39 --   Waiver and Amendment No. 2 to Loan Agreement dated March 21,
                  2003 between General Electric Capital Corporation, Torch
                  Offshore, L.L.C. and Torch Offshore, Inc. (Incorporated by
                  reference to Exhibit 10.3 to the Company's Quarterly Report on
                  Form 10-Q for the period ended September 30, 2003).

      *10.40 --   Lease Agreement by and between Thrustmaster of Texas, Inc. and
                  Torch Offshore, Inc. (Incorporated by reference to Exhibit
                  10.4 to the Company's Quarterly Report on Form 10-Q for the
                  period ended September 30, 2003).

      *10.41 --   Employment Agreement between Torch Offshore, Inc. and Patrice
                  Chemin dated September 22, 2003 (Incorporated by reference to
                  Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q
                  for the period ended September 30, 2003).

      *10.42 --   Loan Agreement among General Electric Capital Corporation,
                  Torch Offshore, L.L.C., Torch Offshore, Inc. and Torch
                  Express, L.L.C. (Incorporated by reference to Exhibit 99.2 to
                  the Company's Current Report on Form 8-K filed December 22,
                  2003).

      10.43  --   Fourth Amendment to Amended and Restated Loan Agreement among
                  Torch Offshore, Inc. and Regions Bank.

      10.44  --   Employment Agreement between Torch Offshore, Inc. and Willie
                  J. Bergeron, Jr. dated January 1, 2004

      10.45  --   Amendment to the Lease Agreement dated 12 August 2003 between
                  Thrustmaster of Texas, Inc. and Torch Offshore, Inc.

      10.46  --   Uniform Time Charter Party for Offshore Service Vessels, Code
                  Name: "Supplytime 89" between Cable Shipping, Inc. and Torch
                  Offshore, Inc. dated January 28, 2004

      10.47  --   Waiver and Fifth Amendment to Amended and Restated Loan
                  Agreement among Torch Offshore, Inc. and Regions Bank

      10.48  --   Waiver and Fifth Amendment to Credit Agreement among Torch
                  Offshore, Inc., Regions Bank and Export Development Canada

      10.49  --   Fifth Amendment to Credit Agreement among Torch Offshore,
                  Inc., Regions Bank and Export Development Canada

      10.50  --   Waiver and Amendment No. 3 to Loan Agreement dated March 21,
                  2003 between General Electric Capital Corporation, Torch
                  Offshore, L.L.C. and Torch Offshore, Inc.

      10.51  --   First Amendment to Loan Agreement by and among Torch Offshore,
                  Inc., Torch Offshore, L.L.C., Torch Express, L.L.C. and
                  General Electric Capital Corporation

      10.52  --   Seventh Amending Agreement to the Conversion Contract Dated
                  December 3, 2002 (as amended to date) between Davie Maritime,
                  Inc., as Builder, and Torch Express, L.L.C., as Owner

      14.1   --   Code of Business Conduct and Ethics.

      21.1   --   List of subsidiaries of the Company.

      23.1   --   Consent of Ernst & Young LLP.

      31.1   --   Certification by Lyle G. Stockstill Pursuant to Section 302 of
                  the Sarbanes-Oxley Act of 2002.

      31.2   --   Certification by Robert E. Fulton Pursuant to Section 302 of
                  the Sarbanes-Oxley Act of 2002.

      32.1   --   Certification by Lyle G. Stockstill to 18 U.S.C. Section 1350,
                  as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
                  of 2002.

      32.2   --   Certification by Robert E. Fulton to 18 U.S.C. Section 1350,
                  as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
                  of 2002.

----------
* Incorporated by reference as indicated.


                                      -72-
<PAGE>
      4(B). REPORTS ON FORM 8-K:

            On October 20, 2003, we filed a report on Form 8-K, reporting under
            Item 5, announcing the appointment of Richard J. (Jere) Shopf to the
            Company's Board of Directors. It was also announced that Mr. Shopf
            would serve as the Chairman of the Audit Committee and on the
            Compensation Committee.

            On November 13, 2003, we filed a report on Form 8-K, reporting under
            Item 12, announcing the release of the operating results for the
            quarter ended September 30, 2003.

            On December 22, 2003, we filed a report on Form 8-K, reporting under
            Item 5, that the Company had refinanced the debt used to acquire the
            Midnight Wrangler with General Electric Capital Corporation with a
            secured term loan in the principal amount of $15.0 million.

            On February 25, 2004, we filed a report on Form 8-K, reporting under
            Item 5, that the Company had entered into a new time charter for the
            Midnight Hunter.

            On March 18, 2004, we filed a report on Form 8-K, reporting under
            Item 5, that the Company had announced updated guidance for its
            earnings estimates based upon management's unaudited review.



                                      -73-
<PAGE>
                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on our
behalf by the undersigned, thereunto duly authorized on April 12, 2004.

                                TORCH OFFSHORE, INC.


Date: April 12, 2004            By:             /s/ ROBERT E. FULTON
                                    --------------------------------------------
                                                  Robert E. Fulton
                                              Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
            SIGNATURE                                   TITLE                               DATE
            ---------                                   -----                               ----
<S>                                  <C>                                               <C>
     /s/ LYLE G. STOCKSTILL                Chairman of the Board and Chief             April 12, 2004
--------------------------------                  Executive Officer
       Lyle G. Stockstill                   (Principal Executive Officer)

  /s/ LANA J. HINGLE STOCKSTILL        Chief Administrative Officer, Secretary         April 12, 2004
--------------------------------                     and Director
    Lana J. Hingle Stockstill

      /s/ ROBERT E. FULTON                     Chief Financial Officer                 April 12, 2004
--------------------------------     (Principal Accounting and Financial Officer)
        Robert E. Fulton

        /s/ CURTIS LEMONS                              Director                        April 12, 2004
--------------------------------
          Curtis Lemons

      /s/ ANDREW L. MICHEL                             Director                        April 12, 2004
--------------------------------
        Andrew L. Michel

        /s/ R. JERE SHOPF                              Director                        April 12, 2004
--------------------------------
          R. Jere Shopf

         /s/ KEN WALLACE                               Director                        April 12, 2004
--------------------------------
           Ken Wallace
</TABLE>


                                      -74-
<PAGE>

                              TORCH OFFSHORE, INC.
                       GLOSSARY OF CERTAIN INDUSTRY TERMS

BOE:                          Barrels of oil equivalent. A measure of aggregate
                              production which includes oil, condensate and
                              natural gas.

Coiled tubing:                A prefabricated single length of reeled pipe (2"
                              to 4 1/2" in diameter) used for delivering tools
                              "down hole" for maintenance purposes, as a
                              flowline, and occasionally for drilling small
                              diameter wells.

Conventional pipelay:         Process of offshore pipe installation whereby
                              40-foot segments, or multiples thereof, of up to
                              60" diameter pipe are welded together, coated, and
                              tested on the deck of the pipelay barge. Each
                              segment is then connected to the prior segment and
                              is submerged in the water as the barge is moved by
                              its anchor winches or thrusters.

Conventional mooring:         One of three methods of positioning a floating
                              drilling, installation or production unit over a
                              position on the sea floor. A vessel is
                              conventionally moored when from one to 12 anchor
                              lines extend from the vessel to the sea floor
                              where they are attached to embedded anchors of
                              various types.

                              While adequate for positioning permanent or
                              transient vessels in shallow to intermediate
                              depths, conventional moorings are impractical in
                              deeper waters as the combined weight of the
                              anchors and lines can exceed the variable deck
                              load of the vessel being moored.

Deepwater:                    Generally considered to be water depths between
                              1,000 and 5,000 feet (also see "ultra-deepwater").

DP:                           Dynamic positioning. A positioning system effected
                              by thrusters on the bow and stern of a vessel that
                              holds the vessel in place without a mooring
                              system. Computers, which use satellite, acoustic
                              and taut wire reference systems, and which take
                              into account wind and current effects on the
                              vessel, direct the thrusters. A fully redundant
                              DP-2 system is capable of using more than one
                              reference system in case its primary system is not
                              operational and can maintain position even with
                              the loss of an engine, computer or a thruster
                              (either at the bow or at the stern).

Drydock:                      A submersible floating barge, equipped with wing
                              walls, which can be submerged in order to allow a
                              normal vessel to float into position between the
                              wing walls. The submerged barge is then de-
                              ballasted in order to lift the normal vessel
                              completely out of the water. Major maintenance and
                              required inspections can then be performed. Upon
                              successful completion of these activities, the
                              submersible barge is again submerged. The normal
                              vessel is re- floated and then removed from
                              between the wing walls.

                              Periodic "drydockings" are required on a three to
                              five year cycle in order for vessels to be
                              maintained in class and hence to be eligible for
                              insurance and for commercial use on offshore
                              projects. The cost


                                      G-1
<PAGE>
                              of any given drydocking is initially capitalized
                              and then amortized over the period until the next
                              scheduled drydocking.

Flowline:                     Small diameter (3" to 12") pipelines that carry
                              fluids. Flowlines are used to collect produced
                              fluids from wells and transport them to treating
                              and storage facilities, as well as to deliver
                              other fluids for injection into the wellbore.

J-lay:                        Describes one of two basic profiles used when
                              installing subsea pipelines, the other being
                              S-lay. The "J" in the term describes the curve in
                              the pipe maintained by the dynamic positioning
                              system and the tensioners onboard the lay vessel.

                              The J-lay technique is only used on vessels
                              equipped with dynamic positioning and is favored
                              for use in deepwater. The J-lay methodology has
                              intrinsic cost disadvantages that result from the
                              use of a single welding station as opposed to
                              S-lay methodology where multiple welding stations
                              can be used, accelerating the lay rate of the
                              vessel and thereby reducing the installed cost of
                              the pipeline. However, the advantages inherent in
                              reducing the number of times the pipe is bent, as
                              well as in the need for less tensioning capacity
                              as water depths increase, make this the favored
                              method in deepwater.

Kips:                         1,000 pounds. Unit used for measuring the tension
                              which can be applied to a pipeline. Tension
                              capability is one determinant of the depth
                              capability of a pipelay vessel.

MARAD:                        U.S. Department of Transportation Maritime
                              Administration.

Moonpool:                     A protected opening in the center of a vessel
                              through which a saturation diving system, remotely
                              operated vehicle or other specialized equipment
                              may be deployed, allowing deployment in adverse
                              weather conditions.

Mooring:                      A means of anchoring a vessel to the seabed.

Reeled pipe:                  A prefabricated flowline or pipeline reeled
                              onboard a lay vessel for transportation, followed
                              by offshore installation. Pipe up to 18" in
                              diameter can be installed using reels operating in
                              either the S-lay or J-lay mode.

Reel lay:                     Process of offshore pipe installation whereby pipe
                              segments are welded, tested and coated onshore and
                              then wound onto a pipe reel in one continuous
                              length. Once the reel vessel is in position, the
                              pipe is unspooled onto the ocean floor as the
                              vessel moves forward.

Riser:                        Typically a rigid or flexible section of pipe that
                              connects a subsea pipeline or well head to either
                              a fixed or floating surface processing facility.

Remotely operated vehicle:    Robotic vehicle that is manipulated from a mother
                              ship, via an umbilical, in order to perform tasks
                              and increase the efficiency of subsea operations
                              at depths where the use of divers is either
                              unsafe,


                                      G-2
<PAGE>
                              uneconomical or technically impossible.

S-lay:                        Describes one of two basic profiles used when
                              installing subsea pipelines, the other being
                              J-lay. The "S" in the term describes the curve in
                              the pipe maintained by the positioning system and
                              the tensioners onboard the lay vessel.

                              The S-lay technique can be used on either a
                              conventionally moored vessel or on one equipped
                              with dynamic positioning. While more than adequate
                              in shallow and intermediate depths, S-lay
                              installation is impractical in ultra-deepwater
                              because of ever increasing mooring and tensioning
                              loads.

Saturation diving:            A type of diving normally required at water depths
                              greater than 200 feet. Divers are kept under
                              pressure for an extended period of time, often
                              many days, in a specially designed habitat and
                              lowered to the seabed by way of a "diving bell" to
                              perform subsea construction tasks. At the end of a
                              work shift, they return to the surface but remain
                              under pressure until they descend for their next
                              work shift. At the end of the project, they are
                              slowly decompressed over several days until they
                              return to surface conditions.

Shelf:                        Continental shelf of the Gulf of Mexico with
                              waters from 50 feet to 1,500 feet in depth.

Spar:                         A type of floating production hull, resembling a
                              large annular cylinder, with air chambers at the
                              top, to provide buoyancy, and ballast at the
                              bottom, to provide stability.

Sponson:                      A structure projecting from the side of a vessel,
                              designed to increase lateral stability.

Spud:                         A metal fabricated pole driven into the mud to
                              hold a barge stationary. At least two spuds are
                              needed to hold a barge in position. Spuds are
                              useful in water depths up to 25 feet.

Stinger:                      A structural member extending from the stern of a
                              laybarge which is designed to support the pipeline
                              as it enters the water. The member may be either
                              rigid or articulated. Its purpose is to maintain
                              the minimum bending radius of the pipe.

Surface supply diving:        Also called "mixed gas diving" or "bounce diving,"
                              it is a diving technique performed in water depths
                              of less than 200 feet. Divers are linked to the
                              surface by an umbilical containing compressed gas,
                              communication and safety lines. Such diving may be
                              done for only a limited duration and requires
                              subsequent decompression to avoid serious injury
                              to the diver.

Tension leg platform:         A form of floating production system characterized
                              by the use of rigid tendons that extend vertically
                              from the sea floor to the hull. These tendons are
                              in "tension" as a result of the hull's buoyancy.

Tie-in:                       The process of connecting a pipeline to another
                              pipeline, or a pipeline to a riser, by means of
                              flanges, mechanical connectors


                                      G-3
<PAGE>
                              or hyperbaric welding.

Trunkline:                    Also called a "transmission line" or an "export
                              line," it is a pipeline of 14" to 42" in diameter
                              and lengths of up to hundreds of miles that
                              transports hydrocarbons from multiple production
                              facilities to an onshore pipeline network or to a
                              process facility.

Ultra-Deepwater:              Water depths in excess of 5,000 feet.

Umbilical:                    Control lines arranged in a bundle that sometimes
                              also include power cables and injection lines.

                                      G-4
<PAGE>
                                INDEX TO EXHIBIT

      *3.1    --  Certificate of Incorporation (Incorporated by reference to
                  Exhibit 3.1 to the Company's Registration Statement on Form
                  S-1 (Registration No. 333-54120)).

      *3.2    --  Bylaws (Incorporated by reference to Exhibit 3.2 to the
                  Company's Registration Statement on Form S-1 (Registration No.
                  333-54120)).

      *3.3    --  Certificate of Amendment to Certificate of Incorporation
                  (Incorporated by reference to Exhibit 3.3 to the Company's
                  Registration Statement on Form S-1 (Registration
                  No. 333-54120)).

      *4.1    --  Form of specimen common stock certificate (Incorporated by
                  reference to Exhibit 4.1 to the Company's Registration
                  Statement on Form S-1 (Registration No. 333-54120)).

      *4.2    --  Registration Rights Agreement, dated June 6, 2001, among the
                  Company, Friends of Lime Rock LP and Riverside Investments LLC
                  (Incorporated by reference to Exhibit 4.1 to the Company's
                  Current Report on Form 8-K filed June 12, 2001 (SEC File
                  No. 000-32855)).

      *10.1   --  Contribution Agreement dated January 15, 2001 among Torch,
                  Inc., Friends of Lime Rock LP, Riverside Investments LLC and
                  Torch Offshore, Inc. (Incorporated by reference to Exhibit
                  10.1 to the Company's Registration Statement on Form S-1
                  (Registration No. 333-54120)).

      *10.2   --  Torch Offshore, Inc. 2001 Long-Term Incentive Plan
                  (Incorporated by reference to Exhibit 10.2 to the Company's
                  Registration Statement on Form S-1 (Registration
                  No. 333-54120)).

      *10.8   --  Form of Indemnification Agreement (Incorporated by reference
                  to Exhibit 10.9 to the Company's Registration Statement on
                  Form S-1 (Registration No. 333-54120)).

      *10.14  --  "Supplytime 89" - dated 31 May 2002 with respect to
                  "G. Murray" TBN "Midnight Hunter" (Incorporated by reference
                  to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
                  for the period ended June 30, 2002).

      *10.15  --  Amendment No. 1 Dated 25 June 2002 to "Supplytime 89" - dated
                  31 May 2002 with respect to "G. Murray" TBN "Midnight Hunter"
                  (Incorporated by reference to Exhibit 10.2 to the Company's
                  Quarterly Report on Form 10-Q for the period ended June 30,
                  2002).

      *10.16  --  Loan Agreement By and Between Regions Bank and Torch Offshore,
                  Inc. (Incorporated by reference to Exhibit 10.1 to the
                  Company's Quarterly Report on Form 10-Q for the period ended
                  September 30, 2002).

      *10.17  --  Memorandum of Agreement between Global Marine Systems Limited
                  of East Saxon House and Torch Offshore Inc. dated 27th
                  November, 2002 (Incorporated by reference to Exhibit 99.2 to
                  the Company's Current Report on Form 8-K filed December 23,
                  2002).

      *10.18  --  Credit Facility Agreement between (1) Torch Offshore Inc. (2)
                  Global Marine Systems Limited Relating to the Vessel "Wave
                  Alert" to be Renamed "Midnight Wrangler" (Incorporated by
                  reference to Exhibit 99.3 to the Company's Current Report on
                  Form 8-K filed December 23, 2002).

      *10.19  --  Assignment of Insurances between (1) Torch Offshore Inc., as
                  Assignor, and (2) Global Marine Systems Limited, as Assignee
                  (Incorporated by reference to Exhibit 99.4 to the Company's
                  Current Report on Form 8-K filed December 23, 2002).

      *10.20  --  First Preferred Vanuatu Ship Mortgage on m.v. "Midnight
                  Wrangler" formerly "Wave Alert" between (1) Torch Offshore
                  Inc., as Owner, and (2) Global Marine Systems Limited, as
                  Mortgagee (Incorporated by reference to Exhibit 99.5 to the
                  Company's Current Report on Form 8-K filed December 23, 2002).
<PAGE>
      *10.21  --  Conversion Contract between Davie Maritime, Inc., as Builder,
                  and Torch Express L.L.C., as Owner, dated December 3, 2002
                  (Incorporated by reference to Exhibit 10.21 to the Company's
                  Form 10-K for the year ended December 31, 2003).

      *10.22  --  Loan Agreement by and among General Electric Capital
                  Corporation ("Lender"), a Delaware corporation, Torch
                  Offshore, L.L.C. ("Borrower"), a Delaware limited liability
                  company, and Torch Offshore, Inc., a Delaware corporation
                  ("Guarantor") and Promissory Note (Incorporated by reference
                  to Exhibit 10.22 to the Company's Form 10-K for the year ended
                  December 31, 2003).

      *10.23  --  Continuing Guaranty by Torch Offshore, Inc., a Delaware
                  Corporation, in favor of General Electric Capital Corporation,
                  a Delaware Corporation, Guarantying the Indebtedness of Torch
                  Offshore, L.L.C. (Incorporated by reference to Exhibit 10.23
                  to the Company's Form 10-K for the year ended December 31,
                  2003).

      *10.24  --  First Preferred Ship Mortgage Granted by Torch Offshore,
                  L.L.C., Owner, in Favor of General Electric Capital
                  Corporation, Mortgagee, on the United States Flag Vessel Named
                  Midnight Eagle (Incorporated by reference to Exhibit 10.24 to
                  the Company's Form 10-K for the year ended December 31, 2003).

      *10.25  --  Employment Agreement between Torch Offshore, Inc. and Robert
                  E. Fulton dated July 30, 2002 (Incorporated by reference to
                  Exhibit 10.25 to the Company's Form 10-K for the year ended
                  December 31, 2003).

      *10.27  --  First Amendment to the Conversion Contract dated December 3,
                  2002 between Davie Maritime, Inc. as Builder, and Torch
                  Express L.L.C., as Owner (Incorporated by reference to Exhibit
                  99.2 to the Company's Current Report on Form 8-K filed April
                  22, 2003).

      *10.28  --  Second Amendment to the Conversion Contract dated December 3,
                  2002 between Davie Maritime, Inc. as Builder, and Torch
                  Express L.L.C., as Owner (Incorporated by reference to Exhibit
                  99.3 to the Company's Current Report on Form 8-K filed April
                  22, 2003).

      *10.29  --  Third Amendment to the Conversion Contract dated December 3,
                  2002 between Davie Maritime, Inc. as Builder, and Torch
                  Express L.L.C., as Owner (Incorporated by reference to Exhibit
                  99.4 to the Company's Current Report on Form 8-K filed April
                  22, 2003).

      *10.30  --  Fourth Amendment to the Conversion Contract dated December 3,
                  2002 between Davie Maritime, Inc. as Builder, and Torch
                  Express L.L.C., as Owner (Incorporated by reference to Exhibit
                  99.5 to the Company's Current Report on Form 8-K filed April
                  22, 2003).

      *10.31  --  Fifth Amendment to the Conversion Contract made as of December
                  3, 2002 between Davie Maritime, Inc. a company organized and
                  existing under the laws of Canada, and Torch Express L.L.C., a
                  company organized and existing under the laws of Louisiana
                  (Incorporated by reference to Exhibit 99.6 to the Company's
                  Current Report on Form 8-K filed April 22, 2003).

      *10.32  --  Parent Company Guarantee to Davie Maritime, Inc. from Torch
                  Offshore, Inc. (Incorporated by reference to Exhibit 99.7 to
                  the Company's Current Report on Form 8-K filed April 22,
                  2003).

      *10.33  --  Credit Agreement, Effective April 23, 2002, By and Among Torch
                  Offshore, Inc. as Borrower, Regions Bank, as Agent, and
                  Regions Bank and Export Development Canada, as Lenders
                  (Incorporated by reference to Exhibit 99.2 to the Company's
                  Current Report on Form 8-K filed May 12, 2003).

      *10.34  --  Waiver and Second Amendment to Amended and Restated Loan
                  Agreement among Torch Offshore, Inc. and Regions Bank
                  (Incorporated by reference to Exhibit 10.1 to the Company's
                  Quarterly Report on Form 10-Q for the period ended June 30,
                  2003).

      *10.35  --  Waiver and Second Amendment to Credit Agreement among Torch
                  Offshore, Inc., Regions Bank and Export Development Canada
                  (Incorporated by reference to Exhibit 10.2 to the Company's
                  Quarterly Report on Form 10-Q for the period ended June 30,
                  2003).

      *10.36  --  Waiver and Amendment No. 1 to Loan Agreement dated March 21,
                  2003 between General Electric Capital Corporation, Torch
                  Offshore, L.L.C. and Torch Offshore, Inc. (Incorporated
<PAGE>
                  by reference to Exhibit 10.3 to the Company's Quarterly Report
                  on Form 10-Q for the period ended June 30, 2003).

      *10.37  --  Waiver and Third Amendment to Amended and Restated Loan
                  Agreement among Torch Offshore, Inc. and Regions Bank
                  (Incorporated by reference to Exhibit 10.1 to the Company's
                  Quarterly Report on Form 10-Q for the period ended September
                  30, 2003).

      *10.38  --  Waiver and Third Amendment to Credit Agreement among Torch
                  Offshore, Inc., Regions Bank and Export Development Canada
                  (Incorporated by reference to Exhibit 10.2 to the Company's
                  Quarterly Report on Form 10-Q for the period ended September
                  30, 2003).

      *10.39  --  Waiver and Amendment No. 2 to Loan Agreement dated March 21,
                  2003 between General Electric Capital Corporation, Torch
                  Offshore, L.L.C. and Torch Offshore, Inc. (Incorporated by
                  reference to Exhibit 10.3 to the Company's Quarterly Report on
                  Form 10-Q for the period ended September 30, 2003).

      *10.40  --  Lease Agreement by and between Thrustmaster of Texas, Inc. and
                  Torch Offshore, Inc. (Incorporated by reference to Exhibit
                  10.4 to the Company's Quarterly Report on Form 10-Q for the
                  period ended September 30, 2003).

      *10.41  --  Employment Agreement between Torch Offshore, Inc. and Patrice
                  Chemin dated September 22, 2003 (Incorporated by reference to
                  Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q
                  for the period ended September 30, 2003).

      *10.42  --  Loan Agreement among General Electric Capital Corporation,
                  Torch Offshore, L.L.C., Torch Offshore, Inc. and Torch
                  Express, L.L.C. (Incorporated by reference to Exhibit 99.2 to
                  the Company's Current Report on Form 8-K filed December 22,
                  2003).

       10.43  --  Fourth Amendment to Amended and Restated Loan Agreement among
                  Torch Offshore, Inc. and Regions Bank.

       10.44  --  Employment Agreement between Torch Offshore, Inc. and Willie
                  J. Bergeron, Jr. dated January 1, 2004

       10.45  --  Amendment to the Lease Agreement dated 12 August 2003 between
                  Thrustmaster of Texas, Inc. and Torch Offshore, Inc.

       10.46  --  Uniform Time Charter Party for Offshore Service Vessels, Code
                  Name: "Supplytime 89" between Cable Shipping, Inc. and Torch
                  Offshore, Inc. dated January 28, 2004

       10.47  --  Waiver and Fifth Amendment to Amended and Restated Loan
                  Agreement among Torch Offshore, Inc. and Regions Bank

       10.48  --  Waiver and Fourth Amendment to Credit Agreement among Torch
                  Offshore, Inc., Regions Bank and Export Development Canada

       10.49  --  Fifth Amendment to Credit Agreement among Torch Offshore,
                  Inc., Regions Bank and Export Development Canada

       10.50  --  Waiver and Amendment No. 3 to Loan Agreement dated March 21,
                  2003 between General Electric Capital Corporation, Torch
                  Offshore, L.L.C. and Torch Offshore, Inc.

       10.51  --  First Amendment to Loan Agreement by and among Torch Offshore,
                  Inc., Torch Offshore, L.L.C., Torch Express, L.L.C. and
                  General Electric Capital Corporation

       10.52  --  Seventh Amending Agreement to the Conversion Contract Dated
                  December 3, 2002 (as amended to date) between Davie Maritime,
                  Inc., as Builder, and Torch Express, L.L.C., as Owner

       14.1   --  Code of Business Conduct and Ethics.

       21.1   --  List of subsidiaries of the Company.

       23.1   --  Consent of Ernst & Young LLP.

       31.1   --  Certification by Lyle G. Stockstill Pursuant to Section 302 of
                  the Sarbanes-Oxley Act of 2002.

       31.2   --  Certification by Robert E. Fulton Pursuant to Section 302 of
                  the Sarbanes-Oxley Act of 2002.

       32.1   --  Certification by Lyle G. Stockstill to 18 U.S.C. Section 1350,
                  as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
                  of 2002.

       32.2   --  Certification by Robert E. Fulton to 18 U.S.C. Section 1350,
                  as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
                  of 2002.

----------

* Incorporated by reference as indicated.